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Friday, January 22, 2016

Bitcoin: A Failed Project?

Posted by Armanino Technology Group

When Bitcoin was released in 2009, it seemed to be the answer to every venture capitalist’s prayers. It was the future of currency—the reach was wide, the fees were low and the transactions almost instant. It had its doubters and flaws, but the outlook for Bitcoin was bright.

Fast forward to 2016, users are ditching Bitcoin, the price is falling and the company is facing an inner battle. Mike Hearn, a prominent software developer for the project, announced his departure last week, stating that the cryptocurrency is a failure.

How can this be? Bitcoin was just rated the best performing currency in the world in 2015. Why would someone want to leave a company with that kind of rating? Truth is, the cryptocurrency is extremely unstable–it is an unpredictable teenager and we’re waiting to see what it does next.

The Downfall

In its early years, the risk of investing in Bitcoin was low, as was its value. But at the end of 2013, Bitcoin broke $1,000, bringing a lot of attention to itself. Then, suddenly, the value dropped, rebounded, fell again and rallied once more, but it has not been able to reach that four-digit mark again. This was all in the span of three years. Today, one Bitcoin equals $409, down in value from 2015. In addition to its value being rickety, Bitcoin has additional flaws that have contributed to where it is now.

Bitcoin is unregulated and allows for anonymity—creating opportunity for thieves. When the value of Bitcoin was at an all-time high, hackers took notice. In 2014, one Bitcoin user claimed he had been robbed of the equivalent of $500,000. Shortly after this incident, a hacker broke into the system and stole tens of thousands of bitcoins from users.

These two occurrences, plus many more following, brought a great deal of negative media attention to the currency and many users jumped off the Bitcoin bandwagon. People were losing money and they were not happy about it.

Today, many more are losing confidence in the currency, including one of its key players. Mike Hearn announced via his blog that he will no longer be taking part in the “experiment” and has sold all of his coins.

Bitcoin was intended to be a currency that was decentralized. However, it is now being controlled by just a small number of people. In addition, there are restraints on the complex software, and it cannot keep up with the current demand. According to Hearn, Bitcoin was designed to process only a small amount of transactions per second, and as a result, the network is collapsing and the devices that should have prevented this are broken.

Repurposing the Technology Behind Bitcoin

In 2014, it was rated as the worst-performing currency and it seems to be a contender for that award again this year—but it’s not all negative news. The technology behind Bitcoin might lead way for future innovations that could make a real impact on the tech industry.

In a recent interview, JP Morgan’s CEO Jamie Dimon said he doesn’t see Bitcoin going anywhere, but that the blockchain technology behind it has something that can be applied to broad applications within banking and commerce. He thinks it will definitely be used for other digital technology.

Blockchain is essentially an archive of data that is protected from alterations. Even the person managing the data cannot make changes. Currently, blockchain acts as Bitcoin’s public record of transactions, but it has the potential to be used in other projects as well. Maybe, instead of wallowing in the sorrows of Bitcoin’s failures, we can learn from its mistakes and modify this technology to create bigger and better “experiments.”

So what’s our conclusion? Bitcoin has grown up, and it isn’t the treasured child anymore. There really is no telling what the future of the cryptocurrency will bring, but Mike Hearn knows that he will not be a part of it. As for blockchain, we’re looking forward and we think it might have a positive impact on future finance—and tech-related applications.

Technology companies face ongoing challenges, from subscription-based accounting issues in the software sector to supply chain disruptions in high tech. Armanino has the practical expertise to meet the industry’s diverse needs. We combine real-world experience with technical skill to help clients solve immediate problems and implement long-term strategies for success.

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