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19 May 2021  (1191 Views) 
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Technology


Are we seeing the end of bitcoin
Bitcoin is the hottest cryptocurrency. It has seen its value increased by a few hundred times to reach a high of US$60,000.

I believe that bitcoin will crash within the next few months and may disappear entirely.

Here are the key features of bitcoin.

a) Bitcoin is based on the block chain - which is a distributed ledger. It requires the entire ledger and transactions to be districted to many parties for validation. This was supposed to ensure security of the ledger. 

b) Bitcoin requires the validators, also called "miners" to solve a complex mathematical equation to prove their work in validating the database. This method consumes a lot of energy.

c) Bitcoin was supposed to be anonymous. The identify of the people making and receiving the bitcoin are kept unknown. 

d) The number of bitcoins is controlled and allowed to increase at a modest rate over a number of years. This was supposed to preserve the bitcoin, similar to physical gold which can only increase by a modest quantity each year due to the high cost of mining.

Here are my reasons why the above features of bitcoin will cause its downfall.

a) The concept of the blockchain is flawed. It is not sensible to send out the entire and transactions several times a day to thousand of miners for validation. When the database becomes large, the workload becomes unmanageable. This has already happened due to the recent interest in bitcoin.

b) There are better ways to appoint a few parties to validate the work without going through the expensive process of solving a complex mathematical puzzle that requires a large amount of energy to be spent. To overcome this disadvantage, some other crypto currencies adopt a different method of "proof of work" compared to bitcoin.

c) The myth of anonymity had been broken. As the distributed ledger and transactions are sent to many parties, it is possible for any party to trace through the transactions and identify some of the parties involved. This has happened in the recent payment of $5 million by Colonial Pipeline as ransom payment to the hacker called DarkSide. The investigators was able to trace the account numbers that made and received the transfers. Furthermore, they were able to identify other payments, amounting to another $80 million or more made by other parties to DarkSide.

d) Due to the scarcity of bitcoin, there was big speculative buying of bitcoin that caused its price to rise to astronomical level. This is the classic example of a bubble. When the holders realize that the bubble will burst, they will sell the bitcoin, causing a crash.

I expect that the crash will happen soon.

Tan Kin Lian

Vote - do you agree that bitcoin will crash soon?

 

 


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