Is Bitcoin a bubble?

Is Bitcoin a bubble?

Price of bitcoin has hit $7,300

But is it all just a bubble? Of course it is.

Could its price rise even higher in the near future? Could it reach $50,000? Of course. At this stage, no-one is in the slightest bothered what it costs – the only thing is that it should keep going
up. During the first world crisis, tulips were changing hands for the price of a house.

But why has this bubble come now? It’s because only around 1% of Bitcoin transactions are using it for payments – Bitcoin’s designated function.

So, is Bitcoin a financial pyramid scheme? No, because no-one has made any payout promises to anyone else – and moreover, there’s no company which is selling Bitcoins (which can’t be said about most ICOs).

When could Bitcoin’s history cease being a bubble? It’ll happen when its exchange rate depends not primarily on speculation, but on its actual use as a currency. Today, the situation is like people buying land plots on the Moon – in the hope that soon we’ll all want to live there.

So why does Bitcoin actually have any worth at all? It’s because it solves a major problem – how to manage your finances anonymously, and without the meddling of others (in which category we can put banks, governments, and others). For many people this is a very worthwhile function (although not, of course, for all!). The price of a Bitcoin will be set by the size of that kind economy – and on a more longterm basis.

Illustration by Katerina Krashtapuk
Pavel KravchenkoCryptographer, founder of Distributed Lab