The Bitcoin price continues to fascinate mainstream and niche media sources alike. It’s hardly surprising given its volatility. After a meteoric rise throughout most of 2017, it fell from around $19,200 to a low of around $6,000. Whilst this is hardly the largest plummet in its history, it certainly represents the biggest drop since Bitcoin had so much media attention. Naturally, many cryptocurrency naysayers had a field day, proudly comparing the fall to “tulip-mania” and smugly patting each other on the back for their seemingly astute knowledge of something that in reality they know little to nothing about.
Since the lows experienced in early February of 2018, the price appears to be once again on the rise. For various reasons, optimism has returned to the market. In this article, we’ll discuss the events behind this turnaround.
One of the most important events of last year that saw the price surge upwards was the beginning of a resolution to what has been known as the “scaling debate” in the Bitcoin community. As the popularity of Bitcoin has risen over the years, the network has struggled to handle the number of transactions being made. This has led to increasing transaction fees, as users competed to have their transaction included in the blocks comprising the Bitcoin blockchain. Previously, when the blocks weren’t full, a very small fee would be sufficient to ensure that the network’s miners (those computer systems scattered around the world that secure the network) would notice and therefore process the transaction. However, when the blocks are full, users are incentivised to increase their fees. This is because the miners favour those transactions that include larger fees. The miners are, after all, running a business.
One technique to allow the network to process more transactions per second is known as Segregated Witness (SegWit for short). This network upgrade effectively splits the transaction data and only includes information that is strictly necessary in each block. Since this increases the space on the blockchain, it should also result in lower fees. After much infighting within the community (that actually resulted in the creation of Bitcoin Cash), SegWit was eventually agreed upon for the main chain. It was implemented through a process known as a “soft fork” in early August 2017. The community rejoiced, and the price continued its trend of the year – upwards. However, SegWit didn’t have the desired effect immediately. It would require wallet providers and exchanges to integrate the upgrade for most of the network to start using it. This has taken some time.
In fact, only recently did some of the Bitcoin industry’s major players integrate support for the protocol. This has had a notable effect on the price of transacting on the Bitcoin network. And the fact that Bitcoin appears to be successfully scaling has certainly had its part to play in the recent price reversal.
Another upgrade that is being worked upon by Bitcoin’s team of open source developers is known as the Lightning Network. This aims to further increase the usability of the network by offering instant and free payment channels to trusted parties. Many Lightning Network advocates think that it would render most alt-coins obsolete since it will decrease the network congestion. It’s long been discussed and has finally made it to the stage where people are confident enough to test it on the network with real money transactions. Naturally, as Bitcoin is currently worth $160 billion, the Lightning developers are keen to stress that it is by no means ready for mainstream adoption on the network. However, the speed with which it has gone from the blackboard to the testing phase has surprised many and increased bullish sentiment for the price of Bitcoin.
Just the word ‘regulation’ can be enough to strike fear into the heart of all Bitcoin purists. The once free market is increasingly under scrutiny from the governments of the world. Rather than attacking Bitcoin, however, most jurisdictions are instead turning their attention to the shady world of initial coin offerings.
ICOs, for those who don’t know, are an innovative form of crowdfunding/investment using cryptocurrency. A company will come up with an idea, create a token, and distribute it amongst those who contribute funds to the project. Most ICOs happen on crypto platforms, such as Ethereum or NEO. Some have done spectacularly well for their founders, raising hundreds of millions of dollars in just days. Naturally, the opportunity to make such vast sums of money attracts the attention of scam artists. As they are mostly unregulated, some malicious actors host ICOs and simply disappear shortly after the token sale is finished.
A recent example was a project known as Confido. The organisers quickly removed most traces of the project from the web after the close of the sale. They made off with over $300,000 in cryptocurrency. This attracted the attention of FINMA (a Swiss financial regulator). Rather than taking the drastic step like China did last September, FINMA have instead tried to create rules for conducting ICOs that will protect both the organisers and the participants alike. This has strengthened the bullish sentiment of the market. Firstly, because regulators have not explicitly targeted Bitcoin, and secondly because the proposals are favourable for the space.
Additional regulatory news from the US and Spain are also adding to the restored positivity in the market. The United States’ Securities and Exchange Commission and the ruling political party in Spain have both recently expressed positive sentiment towards the entire cryptocurrency space. The turnaround in the price reflects this.
There are many proponents of Bitcoin to be optimistic about. Not only have recent upgrades and regulation been positive for the most popular cryptocurrency but the fundamentals of the technology itself are still as strong as ever. The more media attention Bitcoin receives, the more people begin to research the ideas behind cryptocurrency for themselves. This leads many to develop a distrust of centrally-issued currency and question why it’s possible for banks to simply print more money and devalue the public’s savings as ruthlessly as they do. As the cryptocurrency bug spreads, more people are beginning to realize that Bitcoin represents the only completely decentralized currency that, if stored correctly, is completely impossible for a government to confiscate. Cutting-edge technology is increasing the ability for transparency in many areas. As a result, governments that like to operate behind the closed doors are distrusted more than ever. This makes the idea of a currency completely beyond the control of traditional power structures a very attractive one indeed.
This is a guest post wrote by Mary Ann, a Journalist at Cex.io – cryptocurrency exchange.She’s working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.