Are central banks all that bad, really? According to one economic analyst, they’re the reason Bitcoin is headed for great things.
Nathan Martin from the Economic Edge blog posted an analysis on why Bitcoin is not a bubble. His four reasons make a lot of sense.
Decentralization
The power of Bitcoin rests in its decentralized nature. Because Bitcoin is not owned by any centralized banking system (unlike national currencies), the value cannot be arbitrarily manipulated by currency production (i.e. the devaluation of the German Mark, post-WWII). This gives Bitcoin the stability of a commodity like gold.
Supply
The supply of Bitcoin, unlike all other items of value like gold or currency, is strictly limited. There will never be more than 21 mln Bitcoins ever mined. The market is at 80 percent of that number, and will never exceed it. Mining is only getting harder, and the value of each coin will continue to increase.
Security
Decentralization and encryption mean that Bitcoin is secure. It cannot be manipulated by external forces and cannot be confiscated, apart from the hard copy key, which is held only by the individual user entity.
Fraud-proof
Because all Bitcoin transactions are recorded in the Blockchain, the opportunity for fraud is minuscule at best, and immediately traceable.
With unsurpassed security, zero external manipulation and a limited supply, there is no reason why Bitcoin should not continue to increase in price for the foreseeable future, says Martin. Bubble concerns are based on markets where these factors are not in effect.
According to Martin, while a bubble is certainly a possibility in the distant future, the valuation point for Bitcoin is only being tested by the recent gains. Martin argues that this current rise will, over time, be seen as building a base for far greater increases to come.