Think AGAIN! – Is Bitcoin a Better Store of Value than Gold?

Think AGAIN! - Is Bitcoin a Better Store of Value than Gold?

Bitcoin Plummets Big-Time

Bitcoin plummeted, extending its drop to 29 percent from a record high, on speculation some traders were buying its offshoot amid a struggle over the digital currency’s future.

Bitcoin dropped to as low as $5,605 on Monday, from a record high $7,882 reached on Wednesday, data compiled by Bloomberg show. Bitcoin cash rose to $2,426 on Sunday, before plunging to $1,379 as of 9:32 a.m. in Hong Kong, according to Coinmarketcap.com.

Bitcoin has slumped since the cancellation of a technology upgrade to increase its block size, amid speculation supporters of the proposal bid up bitcoin cash to undermine the original bitcoin.

At the heart of the debate is how bitcoin’s underlying technology can accommodate rising transactions as its popularity booms. While increasing its block size would help, opponents argue it would only concentrate mining power, undermining the decentralized nature of bitcoin.

Bitcoin Plunge Exposes a Fundamental Flaw

Virtual currency’s threat to the human environment has been hitting the headlines recently. The race to mine new Bitcoins, exacerbated by rules that make the process use more computer power as time goes on, threatens one day to consume as much power as the whole of Japan, according to Citi. Already, Bitcoin mines stacked high with customized machines whir away in Inner Mongolia, hinting at the crypto-currency’s “Mad Max” problem, as ING’s Teunis Brosens puts it.

But this is a problem only as long as people are desperate for new Bitcoin, and only as long as its rules remain fixed. The dramatic events over the past three days have shown us that neither is guaranteed. The tumble in value of the granddaddy of crypto-currencies, from about $7,300 to just more than $5,600, is testament to its biggest sustainability problem: An inability to evolve as a piece of code without tearing itself apart.

The root cause of the recent price drop is a long-running conflict over Bitcoin’s failure to fix its most obvious flaws.

Although Bitcoin was designed to be a functional payments network, it has failed to live up to those expectations. A boom in transaction activity, worsened by the crypto-currency’s speculative price bubble, has led to intense network congestion.

Each entry in the Bitcoin payments ledger—or, in crypto-parlance, each block in the blockchain—is capped in size, and transactions are slow to process. Transaction fees have blown past $10. Given the obstacles to spending Bitcoin like a currency, the incentive has been to hoard it like a commodity.

If this were Microsoft Corp. or Apple Inc., it would only take a nod from the CEO to deliver a system upgrade or patch to improve the network. But this is crypto-land. An issue as trivial as increasing capacity ended up kicking off a civil war among developers, miners and evangelists that has raged for several years. Those who want to keep transaction batch sizes small are accused of being nostalgic cyber-idealists, while those who want to ramp them up are accused of wanting to centralize power among wealthy vested interests.

In protest, a new crypto-currency with bigger block sizes, Bitcoin Cash, was launched in August. As for Bitcoin, a compromise solution intended to launch last week failed to get off the ground. Bitcoin remains Bitcoin.

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