The Future of Bitcoin and the Challenges It Faces

While nothing about the future can be certain, Bitcoin’s future does seem to be more certain than many other things. In all likelihood, it will continue its upward trend of unparalleled growth and will continue to fuel a movement of decentralization. Some predict that Bitcoin’s value could hit $100,000 within the next few years; seeing as it has no sign of slowing down, that prediction could very well become a reality.

However, Bitcoin has many hurdles that it will have to overcome in order to continue to grow and remain viable. One involves the tremendous amount of energy that is required to keep the network running. If there are 10,000 Bitcoin nodes working to verify transactions, then consider how much energy is consumed. One Bitcoin transaction actually takes about as much energy as it required to power a home for an entire day. Many would be miners, and other node operators have had to decline to join the network in that capacity because it would cost too much money. If the cost of mining continues to increase, more people will be priced out of the operation and Bitcoin will ultimately no longer be viable. It is extremely energy inefficient, so much so that its energy consumption could eventually derail the entire network. One proposed solution is to change the protocols so that not all of the nodes are required to verify a transaction; however, this move could compromise the network's security and even open up the possibility of double spending. A more likely solution would be to offer incentives to nodes that use solar power or another renewable form of energy. Renewable energy is much cheaper than that generated from fossil fuels. Whereas fossil fuels require surveying, building rigs, paying drillers, transporting across long distances, and processing, renewable energy doesn't require much more than the start-up equipment. One small windmill could easily power a large mining farm without incurring costs beyond that of building the windmill. Solar panels can provide practically free energy to any location that has ample sunshine. Incentivizing these forms of energy could decrease Bitcoin's energy consumption and carbon footprint, thereby allowing it to remain viable.

Another challenge that Bitcoin will have to face is its legal status. The IRS has declared that it is an asset and will be taxed as such. However, much needs to be clarified, considering that users can send and receive it as currency. Some people receive their paychecks in Bitcoins. Does this mean that they will be subject to payroll taxes, and if so, how will the IRS configure the exchange between Bitcoins and dollars? Considering the high volatility of Bitcoin's value against the dollar, this feat will not be an easy one. Its value changes by the minute, sometimes even by the second, so how will the IRS determine how much should be used for payroll taxes without recognizing it as a currency?

In addition to figuring out how tax laws should apply to Bitcoin is the question of how it should be upheld in a court of law. Individuals engaged in Bitcoin-related Ponzi schemes have been prosecuted for money laundering and fraud. However, anonymity frequently prevents these individuals from being identified and brought to court. The question of whether the courts will one day be able to require Bitcoin users to be somehow registered so that they are not anonymous but is a very real one. Additionally, the question of how Bitcoin itself would be viewed in a court of law is in question. If the IRS does not view Bitcoin as a currency, then if a dispute were to erupt involving Bitcoin, what would be the court’s stance on how it should proceed? There is no precedent. To solve this problem, the team of Bitcoin developers will need to seek legal counsel about what Bitcoin’s legal standing should be.

Another challenge is how Bitcoin will continue to prevent regulation, as efforts to regulate it seem to be increasing. New York State has passed a law requiring companies to acquire an expensive BitLicense in order to receive payments in Bitcoins. The cost of the BitLicense is so high that some companies have had to stop receiving Bitcoin payments. In other places such as the UK, EU, and Japan, traditional banks like Barclays and even government-run businesses have begun accepting Bitcoin. While these moves appear to be an acceptance of the cryptocurrency, some are concerned that they are actually underhanded attempts to regulate Bitcoin. If governments begin to accept payments in Bitcoins, they could foreseeably begin enacting laws regulating it. How Bitcoin will continue to grow and not be subject to regulation is a serious question.

Is Bitcoin the Next Gold?

Remember that gold became ubiquitous as a universal standard in trading. Instead of bartering goods, gold could be used across boundaries in order to procure and sell goods. From this perspective, Bitcoin could very well be the next gold. It is not connected to any one national currency but instead accepted freely across international borders; it is a type of new universal standard that can be used in much the same way that gold was.

Gold does not derive its value from what governments say that it is worth but rather from what the people who use it say it is worth. Governments can assign it as a value, but this value is only arbitrary and is subject to market fluctuations based on supply and demand. In this sense, Bitcoin is again like gold. While a dollar figure may represent how much Bitcoin is actually worth, its real worth is determined by the people who use it. Any dollar-based figure is merely an arbitrary representation of how much an entity thinks it is worth. What people are willing to pay for it, rather than what an exchange posts about its current rate, determines how much it is worth.

Bitcoin is different than gold in one important way, and this does not have to do with the fact that gold is a physical asset while Bitcoin is a digital asset. Bitcoin has something called social capital. Social capital is the power that is derived from having some people adhering to a particular cause. Bitcoin is more than a currency; it is a movement of decentralization against big government and large financial institutions that have crippled and simultaneously taken over the market. It is a people's movement of taking away the biopower that was gained through centralized institutions providing services at a cost and replacing it with community-based peer-to-peer networking. With this movement growing day by day, there is absolutely no indication that Bitcoin will lose steam. It has already spawned a revolution in computer technology by implementing blockchain, as well as a number of technologies such as Ethereum and other blockchain networks. Even if the dollar value of Bitcoin continues to fluctuate, its true value lies in the movement that it founded.

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