Digital Currencies are On the Rise in 2017
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Digital currencies are becoming more valuable this year. The cost of the widely used Bitcoin in U.S. dollars has grown by 560% since a year ago. Bitcoin is becoming more and more talked about in the mainstream. It’s breaking records, pushing its market cap above $55 billion recently. Another popular crytopcurrency called Ether, which is part of the Ethereum platform, has gone up in value by 2600%since this time last year. Traditional stock exchanges, such as the NYSE, have machine-assisted trading tools and tens of millions of people and institutions investing daily. But bitcoin and ether’s trading platforms aren’t centralized, nor are there institutions who can easily control the market in these digital currencies.
There has also been a rise in numbers of people willing to accept bitcoin, or other digital currencies, as payment. For instance, the federal government could, under a strict interpretation of the law, fine or file charges against a bank for providing services to a marijuana business. So the marijuana industry is using bitcoin as a bridge currency since traditional banks often won’t work with marijuana-based companies due to federal law. So the Bitcoin can act as an intermediary currency between a consumer and a weed-product retailer.
But what’s really behind the positive momentum in bitcoin and ethereum? Some believe that part of the reason is due to a mystery manipulator known as Spoofy. It’s a single or a group of traders with deep pockets rumored to be manipulating the bitcoin market using tens of millions of dollar to implement the practice of spoofing. Spoofing is bidding or offering with the intent to cancel the bid or offer before its actually executed. This is not permitted according to the Dodd-Frank Act. The Hackernoon website explains how this is affecting the bitcoin market. “Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin of course to pull it off, and with impunity on Bitfinex.”
The reason for splitting Bitcoin in the first place was because of the inherent limitations with the original cryptocurrency. Bitcoin is built on something called a blockchain. This is basically a public ledger on the internet containing all the transaction data from anyone who uses bitcoin. Transactions are added to “blocks” or the links of code that make up the chain, and each transaction must be recorded on a block. But transactions can slow way down if these blocks become full. Currently, there are an average of about 1,700 transactions that can be saved per bitcoin block, at about three transactions per second. By comparison credit card companies such as Visa, can handle thousands of transactions every second. But even at this point, the bitcoin blockchain is becoming too congested. A bitcoin user could pay for something using his or her bitcoins, but it wouldn’t be approved for hours. So the solution was to create a “hard fork” and use a new type of currency called Bitcoin Cash. This is a completely new software that allows for eight times the number of transactions per block. This means Bitcoin Cash could process transactions faster than Bitcoin. Right now both forms of bitcoin exist together in the market.
Cryptocurrencies are still fairly new relative to other mediums of exchange. Many banks, merchants, and governments are still weary about adopting bitcoin or ether. But as time goes on digital currencies will probably become more accepted and widely used throughout the world. It will be an interesting space to watch for the next decade or so.
Disclaimer: This author does not hold any bitcoins, bitcoin cash, or ethereum and doesn’t plan to buy any within 72 hours of writing this post.
