Saturday , May 8 2021

The recurring split of Bitcoin undermines its long-term value

Cryptocurrency has crashed back. Bitcoin has slumped to the lowest price in more than a year. More than $ 600 billion in "market capitalization" claimed to have vanished from the world of pseudo-money and digital tokens since early January.

A bit like Burberry's scarf, bitcoin has been a victim of its own success, with countless knock-offs damaging its value.

Bitcoin – the first and best known of cryptocurrency, made from smart mathematics and managed through a global computer network that avoids the banking system – is now valued at around $ 5,500. That was far from the all-time high of around $ 20,000 in December. Other cryptocurrency fared even worse. Ripple, a banker-friendly, centralized cryptocurrency that has more than 36,000 percent in 2017, has lost about 85 percent of its value since early 2018.

Knowing exactly why prices are moving on a bottomless market and where rampant idolatry is, for the most part, foolish games. But the sentiment can at least be partially understood. This time, crypto traders seem to have been troubled by "hard forks" – splits that occur when cryptocurrency developers cannot agree on how to update the underlying software.

The latest dispute over ideology is about "bitcoin cash", an imitation of the original that was the result of another fork last year. These are divided into two different versions on Thursday.

Such dilution is precisely why cryptocurrency is ultimately destined to fail. Unlike physical gold designed to imitate bitcoin, this digital gold has no real scarcity. Even though there are only 21m original, there is no limit to the number of versions that can be separated. Also there is no limit to the number of rival cryptocurrency that can be made with a few clicks by anyone with a basic understanding of coding. CoinMarketCap, the crypto statistics website, now lists prices for more than 2,000 crypto currencies.

The money collected through initial coin offers – part of the market where the most bold cowboys in the Wild West can be found, and which are largely responsible for 2017 price increases – have fallen sharply in recent months. . Research published by EY last month showed that, of the 372 ICOs analyzed by consultants last year, 30 percent had lost "substantially all" of their value, while 71 percent of those using ICO to raise money had not released a prototype. (leave the product working).

Even though the bubble might start erupting, it's unfair to conclude that bitcoin has failed miserably. Satoshi Nakamoto, the creator of his pseudonym, was not the first to try to form a new type of electronic money, but he was the first to succeed because Bitcoin managed to solve the problem of decentralized digital currencies that were spent repeatedly.

Only a few people can imagine Bitcoin will spawn thousands of cryptocurrency with an estimated value that at one point approaches $ 1tn. And 10 years from the start, bitcoin still features regularly on pages of newspapers around the world, including this one.

Cryptocurrency may be very unstable and bad for the environment, but they have value as a means of censoring-sending money – even if criminals are one of the main users.

Whether or not cryptocurrency will, in the short term, recover some of their losses is anyone's guess. Their prices are very arbitrary, and evidence shows that they are very manipulated. That makes it basically impossible to predict where they will go next.

One thing is certain under the law of supply and demand: something that can be replicated indefinitely does not have long-term value. Anyone who tries to market such a thing – however many new bells and whistles they use – basically tries to sell hot air.

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