Bitcoin And I’ts Future

Bitcoin (BTC -0.08%) may be many things, but it is always exciting. The market for the largest, oldest, and most established cryptocurrency is still adjusting, swinging almost equally in response to positive and negative news.

In that case, what does Bitcoin’s future hold? Let’s think about the best-case scenario, the bear’s best chance, and then figure out what’s likely to happen.

In an ideal world, Bitcoin would be a financial windfall.

Some people, like MicroStrategy (MSTR 5.07%) chairman and Bitcoin maximalist Michael Saylor, think that Bitcoin will replace all other currencies. In his view, the price will rise “forever,” albeit with some ups and downs. Therefore, MicroStrategy has invested most of its financial reserves into Bitcoin and continues to do so whenever it possesses further funds. Saylor thinks it is the soundest strategy for long-term cash management.

How, therefore, can Mr. Saylor’s ultra-bullish hopes for significant price rises to be realized? So, let’s pretend that Bitcoin’s luck is at its utmost best and everything goes as planned:

Companies as diverse in size as Starbucks (SBUX 0.07%) and Tesla (TSLA -0.75%) now accept Bitcoin as payment, stating Bitcoin’s growing global appeal. Your java in the morning? Used Bitcoin as payment. The latest electric vehicle? Yes, I paid Tesla in Bitcoin.

Approval from governments: Bitcoin is entering a new era of supportive rules and acceptability as governments globally tolerate and actively push its use. Bitcoin would follow El Salvador’s lead from two years ago and become widely acknowledged as a currency worldwide if this were to occur.

Bitcoin’s technological advancement allows faster and cheaper transactions without compromising its anti-inflationary objectives or underlying philosophy of efficient value storage. Any payment processor can now be trusted as much as its blockchain. This massive improvement would also benefit Bitcoin-powered cash register checkouts.

Bitcoin gains credibility and demand from institutional investors as Wall Street giants like Goldman Sachs and BlackRock begin to invest in it as though it were a traditional asset class. All sizes of investors are using this system to store and increase their wealth for the long term.

Given the preceding, it’s easy to see why Bitcoin should be the foundation of a thriving DeFi ecosystem.

This best-case scenario may offer a bright picture, but it is just that. We’ll need some good fortune and a lot of progress to get there. Of course, who doesn’t enjoy a good daydream now and then?

The ultimate failure of Bitcoin.

Many investors believe Bitcoin and other digital currencies are worthless (the “bearish” side of the Bitcoin debate). Berkshire Hathaway (BRK.A 0.78%) (BRK.B 0.27%) CEO and investing guru Warren Buffett, for instance, has referred to Bitcoin as “rat poison squared.”

Buffett and other cryptocurrency sceptics believe the Bitcoin token will eventually become obsolete. There are a variety of methods this could occur:

If governments everywhere prohibit Bitcoin, its value will drop to zero. No one will care about the digital coin if they can’t spend, buy, or sell it.

Suddenly becoming outdated: Bitcoin might be rendered useless if a rival digital currency with superior technology arose. The better option is to improve security, speed up transactions, enhance privacy safeguards, or reduce energy use.

Disastrous design flaw: Bitcoin’s fundamental technology might have a critical weakness that compromises the safety of the whole network. For instance, quantum computer attacks on the monetary transaction system could occur. The very presence of the newly discovered security weakness would cause investors, consumers, governments, and businesses to lose faith in Bitcoin, regardless of whether or not anyone exploits it. There will soon be a significant discount.

Potential for further criticism and maybe governmental limits due to environmental concerns if Bitcoin’s energy consumption continues to climb. Bitcoin might lose a lot of market credibility and value if the objections get loud enough.

Remember that this scenario is just as hopelessly adverse as the best-case scenario discussion was positive. The likelihood of these calamities occurring is equivalent to that of a Bitcoin paradise. Pay close attention to the hazards associated with any investment, but especially with something as volatile and unpredictable as Bitcoin.

However, Bitcoin’s future is still ongoing. Now that we’ve eliminated the most unlikely scenarios let’s look at the more plausible outcomes for Bitcoin’s future.

The practical, moderate path forward

The abovementioned Utopian and dystopian summaries are not predictions but thinking experiments. In truth, the next few years will bring positive and negative developments for Bitcoin and other cryptocurrencies. Although digital currencies appear prepared to alter global financial markets radically, the path ahead will likely be complex and full of surprises.

So, here is my more pragmatic assessment of Bitcoin’s future:

Regulators need to figure out how to handle cryptocurrencies. Therefore the market remains unsteady. Some will welcome Bitcoin and related technology, while others will maintain their bans. The market’s reaction to regulatory news could cause severe volatility during these times of back-and-forth.

Adoption will likely occur gradually as more companies and individuals adopt Bitcoin and other cryptocurrencies. Volatility risks, transaction costs, and regulatory worries could discourage some businesses from participating. However, the movement towards wider acceptance appears inevitable.

Bitcoin will very certainly encounter intense competition from alternative cryptocurrencies. There will be those facilitating transactions more quickly than others, those with reduced fees, and those prioritizing user anonymity. Bitcoin may be the most well-known cryptocurrency at the moment, but there are plenty of alternatives to consider, and Bitcoin’s continued pre-eminence is far from certain.

The Bitcoin network is likely to undergo additional technical enhancements in the future. However, these changes may need to be faster and more contentious. Getting miners and node operators to agree on a protocol update can be challenging for Bitcoin.

Can Bitcoin go from Proof-of-Work validation to the more energy-efficient Proof-of-Stake mechanism, as Ethereum (ETH -0.01%) has just done? And if that’s the case, does Bitcoin have a chance of maintaining its maximum supply of 21 million coins? And if they don’t, competing cryptocurrencies may eventually seize that opening to unseat Bitcoin as the dominant cryptocurrency.

Bitcoin’s price is expected to continue fluctuating widely, with significant price changes being the rule rather than the exception. Even if this volatility settles down as the market develops, you should still prepare for wild rides for the time being.

In sum, the fate of Bitcoin is up in the air, although it will most likely not become the universal currency or completely vanish.