Bitcoin is in a very precarious space currently. As an ardent and die-hard believer, not only of the tenets of Bitcoin, but also of the inherent value of this revolutionary new money, I now find myself slightly less bullish about its price movement in the short-term.
There is a tug-of-war playing out over the issue of scalability which is threatening to split the Bitcoin network in two. A split would cause immense reputational damage and will reverse much of the gains made over the past 5 years.
I see one of two scenarios playing out:
- No resolution to the scalability debate. The network experiences a Hard Fork.
Definition: ‘Hard Fork’
As it relates to blockchain technology, a hard fork is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa), and as such requires all nodes or users to upgrade to the latest version of the protocol software. Put differently, a hard fork is a permanent divergence from the previous version of the blockchain, and nodes running previous versions will no longer be accepted by the newest version. This essentially creates a fork in the blockchain, one path which follows the new, upgraded blockchain, and one path which continues along the old path.
This is the worse of the two possible outcomes. The ‘brand’ of Bitcoin will be severely damaged, the nay-sayers will [falsely] gloriously proclaim the death of Bitcoin, market price will drop/plummet (depending on how fracturous the fallout), and the task of spreading mass adoption and understanding will multiply in difficulty.
2. The community reaches a consensus and temporarily solves the scalability issue.
This would be a major win for Bitcoin. It would signal the triumph of open-source methodology, where the sharing of resources, ideas and man power contribute to finding the best solution for the entire Bitcoin community. This would go a long way in validating open-source governance as a viable and successful model. Should this play out the Bitcoin price is likely to climb sharply in value. Until this consensus is reached however, the price is likely to continue falling at a slow rate.
This forms the foundation for my warning. Where previously, I would be preaching for mass and immediate adoption, I now preach caution – to current holders of Bitcoin and also to prospective buyers into cryptocurrency. The current market atmosphere is rife with FUD (fear uncertainty and doubt). A high level of technical understanding is required to merely grasp the basis of the scalability debate. Even with this knowledge markets are still prone to irrational behaviour, panic selling and all out chaos in times of uncertainty.
To first time buyers I advise waiting until the storm has passed and there is a clearer picture of which scenario will play itself out.
To current holders of Bitcoin my advice is slightly different. Although there is much turmoil at the moment, Bitcoin still retains its incredible revolutionary power and will recover from this impasse relatively quickly. Regardless of whether a fork happens or not, maintaining a long position is still a very smart investment; provided that you are not prone to panic selling, even if the price drops to below $100.
Embedded within this warning, lies opportunity. As I have mentioned, Bitcoin cannot die (in a separate blog post, I will go into much greater detail as to why). For new entrants, the opportunity lies in getting in cheap. Purchasing at the $1000 mark is a fantastic entry point, and anything less than that just offers more and more value.
If you are currently holding Bitcoin, the opportunity presented is two-fold.
- You can purchase more BTC at the lower price.
- You can invest in alternate cryptocurrencies whilst Bitcoin solves it problems.
Personally, I have opted for option B. I have swapped 80% of my Bitcoin for Ethereum and plan to re-purchase Bitcoin when the situation improves.
Finally, it all comes down to taking a Leap of Faith. When we truly break down our institutions to their core, our systems of governance, our beliefs, our investments and even our closest personal relationships, they all rely on faith and trust.
Faith is often convoluted with religious imagery and meaning. I use faith in a different sense here. Faith and fact are not mutually exclusive ideas: gravity is a fact, proven through observation, yet we cannot see, hear nor smell gravity. Scientists are yet to find a ‘gravity’ particle and still cannot explain with any great detail what or where it comes from. Yet we wake up every morning with the certainty that our feet will remain stuck to the ground. We hold an implicit faith that gravity will not suddenly cease to stick us to the earth.
How do we know that our mothers love us? Based on past experience and behavioral evidence I have faith that Koulla loves me today, and will continue to love me tomorrow.
Similarly, my faith in Bitcoin is based on fundamentals – it is not meant as an airy fairy attitude nor as a risky gamble. Bitcoin is the most certain bet I’ve ever taken in my life (and I have taken many bets).
I believe in Bitcoin. I believe in crypto. I choose to put my faith in the Blockchain; into truly open, transparent systems, which, sooner or later, will completely usurp our current monetary systems.
Do you want to buy in after the horse has bolted, or do you have the vision to invest early?