Bitcoin has dominated the news over the last month as the price of the cryptocurrency has skyrocketed, breaking all records and raising the combined market cap of all cryptocurrencies to over $150 billion. Bitcoin is here to stay and predictions of where the price could go in the coming months and years are attracting thousands of new investors by the day. But will Bitcoin really rocket to a new level of highs in price and, perhaps more importantly, will it fulfil its original promise of being a better form of money than our traditional fiat currencies?
Featuring regularly on CNBC and the front-pages of financial publications, including price updates in the Wall Street Journal, Bitcoin has gone from being a hobby for enthusiasts to a serious investment instrument. Speculation is that the first regulated ETFs will soon pass scrutiny in the USA and that institutional money is about to flow into the space.
Goldman Sachs analyst Sheba Jafari predicted a $4800 price on the cards in the near future, with others predicting that the price could be as high as $10 000 before the end of 2017. A research paper by an anonymous author - not unusual in the world of cryptocurrency - presented a model for a $5.8 million price per Bitcoin in the next decade. While that price may sound ridiculous, so did $4000 in 2011 when Bitcoin first made it to $5. Anything seems possible now.
The recent price surge has many components, including those mentioned above and suggestions by governments, including Russia, that they may begin stockpiling Bitcoin soon, along with serious projects to use blockchain technology for sovereign currencies.
The price surge started for technical reasons, however, following a hard fork in the Bitcoin code.
Forks come in different forms and happen for a variety of reasons. In the case of Bitcoin, a fork occurred on 1 August 2017 as the result of a long-running feud within the community of developers that maintain the Bitcoin source code over how to scale the network to enable more transactions and greater efficiencies in the face of growing demand.
A difference in technical answers to the scaling challenge created a camp of developers that were able to build support for their solution in the form of a new cryptocurrency called Bitcoin Cash that is trading at just over $300 at the time of writing this article. The main difference between Bitcoin Cash and its ancestor currency is that Bitcoin Cash has a larger 8MB block size that in theory increases the network’s ability to process transactions and address scaling issues through a different approach to that offered by Bitcoin’s Core developers.
Because Bitcoin Cash is a fork, everyone who had Bitcoin before the fork would also have the same amount of Bitcoin Cash units after the fork while keeping their original balance of Bitcoin too. It’s a bit like copying files from one network to another - they now exist in both places, but have divergent future paths and values.
With a successful fork behind it, the price of Bitcoin immediately began to climb, hitting a new high of $4400 by mid-August. Bitcoin has a market cap of $69 billion at the time this article was completed, making it more valuable than PayPal.
The Cash fork also forced many Bitcoin-focused businesses to consider alternative currencies for the first time. AlphaCode member Luno, for example, made Bitcoin Cash withdrawals available to its members. The company said this wasn’t an easy decision. It has traditionally resisted the addition of other cryptocurrencies, including Ethereum which has been added by most other exchanges, including Coinbase which also only did Bitcoin in the past and recently raised $100 million in its Series B fundraising.
Werner van Rooyen, who heads up Business Development and Marketing, said that Luno made the decision following customer demand. He added that Luno adopted a wait-and-see approach. The company remains committed to Bitcoin but decided that if Bitcoin Cash reached a significant enough value, it would make sure that customers received their due.
“Due to the general confusion in the market about what people should do with their Bitcoin to get access to Bitcoin Cash (BCH) and requests by our customers, we decided to allow for the selling and withdrawal of BCH on Luno,” said van Rooyen.
“We'll keep monitoring the digital landscape, keep listening to our customers and keep working hard to build the financial system of the future.”
Luno has seen large numbers of new users flock to the platform as news of new high prices spread, but van Rooyen said that the company could not comment on Bitcoin adoption numbers in South Africa.
“Along with the price increases, we've seen a big surge in general interest and Bitcoin buying activity over the past few months in South Africa,” he said.
“This could be attributed to better-informed consumers and the network effect that assists and accelerates adoption, making Bitcoin more useful with every passing day.”
He added that “If you were one of the first people with an email address, you probably wouldn’t bother using it, just because nobody else was. But Bitcoin is slowly starting to hit the mainstream in South Africa, which means that it just becomes more interesting and useful to consumers by the day.”
Farzam Ehsani, Blockchain Lead for the FirstRand Group and Chairman of The South African Financial Blockchain Consortium, said that this growth spurt goes beyond people looking to make a quick buck, and suggests a profound change taking place in society.
“It’s important to look at this in the larger context of humanity’s evolution,” explained Ehsani.
“If you look at our current system, based on the nation state, which has only been around 400 years, and then you look at cryptocurrency, which pays no heed to borders and doesn’t care who you are or where you live - that is calling into question a lot of our societal paradigms.”
Bitcoin might be money, but it’s also a protocol, says Ehsani, and it impacts the way we organise and govern.
“It’s going to start changing the nation state. What is governance? How do you regulate this stuff? We’re at such an early stage. There are no experts and we can only guess what’s coming in the future. But what I can say is that it’s not just the financial system that will change because of this - it’s much much larger than that,” he said.
The next phase of growth, according to Ehsani, will come from a combination of economic events, the evolution of states, and other more subtle factors that are hard to predict.
“If you look at Venezuela right now where there is hyperinflation, we see how the current financial system is under pressure. But people don’t act until things become personal to them. Innovation and people creating new things will drive it, along with disruption and crisis. But when you see how a child grows, you don’t pick up the changes from day to day. And then in 20 years, you wouldn’t recognise that person. There will be immediate changes in some areas, but there will be more incremental changes too.”
Founder and CEO of Bankymoon, Lorien Gamaroff agrees that economic events could drive adoption of Bitcoin, but thinks that cataclysmic events are likely.
“We’re headed for a hyperinflationary implosion and a major crisis in the current financial system, and this will drive large scale adoption for Bitcoin,” said Gamaroff.
He added that Bitcoin offers a system that prevents this nature of crisis from occurring again in the future.
“What we’ve seen is that we can have a financial system without a government to control and constrain it. We don’t know exactly what the future will look like, but in the next ten years the ways we transact with each other will be vastly different.”
Ironically, Gamaroff says that it’s a lack of control that makes for more stability in a financial system dominated by something like Bitcoin.
“Bitcoin’s greatest strength is that no one is in charge. There is a trusted protocol that no one person can change. There will only ever be 21 million Bitcoin and that controls inflation,” he explained.
While more forks may happen, and the world has over 1000 different cryptocurrencies now, Gamaroff believes that ultimately Bitcoin will remain the dominant chain and displace most other cryptocurrencies.
“Ultimately, everyone wants a single Bitcoin. I’m far more confident in Bitcoin as a long term investment than these other currencies, because of its commitments to being anti-inflationary and the fact that no one can change it.”
That said, there is much work to be done in growing usage by consumers and Gamaroff said that his new project, called Centbee, is focused on creating solutions that make using Bitcoin easier for everyday transactions.
“How do we get everyday people to start using Bitcoin? How can you help businesses start accepting it so that people with Bitcoin can walk into a store and pay with it? That’s what we’re working on with Centbee,” said Gamaroff.
It’s that adoption curve that will ultimately decide the future of cryptocurrency. Trading on highly volatile prices is interesting to a small group of people who understand the complexities want to profit from speculation, but if Bitcoin is to really change the way we use and think about money it has to go way beyond where it is today and into the hands of billions of people who are still focused on the old world of money.