Even after declining two-thirds in its value since the December price hike, the current position of Bitcoin stands good enough. Its present worth is three times higher than the past year. Nonetheless, the world’s first decentralized digital currency confronts a very dubious future.
As per the current market analysis, there are three possible situations emerging:
Either Bitcoin would supersede the US Dollar and all the other currencies in use (in short, it will start to function as the fundamental element of exchange in various economies), or the currency may continue to prevail as the fundamental element of exchange everywhere, except a few non-adaptive economies like those of Venezuela. However, in this situation as well, Bitcoin’s market capitalisation remains important enough, intermittently encountering highs and lows.
In the third possible outcome, the token may be abolished, and never put to use as a means of payment again. The last situation, however, is quite improbable, owing to the token’s efficacy in the black-market economy.
In reference to the second situation, it can be said that since the total number of Bitcoins that can be created is finite, it is inherently deflationary, like gold. The CEO of Andreessen Horowitz, an American capital firm, says “Probably for the foreseeable future, Bitcoin is just a pure digital gold.”
However, a number of arguments have been raised upon the third possibility: the Bitcoin Bust scenario. An economist, Eric Budish, associated with the Booth School of Business, University of Chicago, put forward one such argument in a recent paper, titled, The Economic Limits of Bitcoin and the Blockchain.
The Banks, which are established under law and are to certify fiat money transactions have now gained the trust of people over a long period of time. Therefore, the affairs under their authority can be easily carried out and have been widely accepted. Bitcoin, however, runs on a decentralised network, and in that case, each time a transaction takes place, trust has to be re-established.
Budish, therefore, recognises a significant flaw and that is the inherent cost of repeatedly re-establishing trust. Also, according to him, this may serve a major role in making Bitcoin economically unviable; and if this happens, it will either make way for the birth of a new cryptocurrency or the fiat money would continue to rule the economies.