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The dramatic rise of Bitcoins: What is the reason behind it?

Article: Bitcoin

The dramatic rise of Bitcoins: What is the reason behind it?

"Bitcoin now seems like a charging train with no brakes," said Shane Chanel, from Sydney-based ASR Wealth Advisers.

The internet-based virtual or digital currency Bitcoin is continuing its record-breaking run and it touched $17,000 recently. While some people are banging their heads for the notional loss of not having invested in the cryptocurrency earlier, critics are arguing that Bitcoin is going through a bubble similar to dotcom boom.

After the market crash in 2009, digital currencies started showing up as the best alternative. Bitcoin was the first established cryptocurrency where transactions were secured and hidden making traditional financial regulation difficult if not impossible. There was no need for a third-party to validate or clear the transactions.

Though there had been attempts at creating online currencies with ledgers secured by encryption before, they were formulated but never fully developed. It was not until 2009 when the Bitcoin software is made available to the public for the first time along with mining, i.e the process through which new bitcoins are created and transactions are recorded and verified on the blockchain, began.

Now, the key question that is going around, what can be the reason behind the massive price pushes of bitcoins?

Here, look at the dynamics behind Bitcoin's increasing price hike:

1. Bitcoin's recognition as a legal method of payment in Japan

Since its inception, regulators were challenged by Bitcoin's framework, struggling to find a way to bring it under control. Bitcoin is banned by some countries as it was difficult to work out ways to tax and regulate its operations. Since Japan legalized Bitcoins, the demand increased and this is considered to be one of the prime reasons for contributing to its increase in value. Japan’s Financial Services Agency officially recognized 11 companies as registered cryptocurrency exchange operators. This can be the major reason many countries are coming out in support of the cryptocurrency.

2. Increasing demand for Bitcoin

Despite the uncertainty factor, fears of bitcoin 'bubble' bursting, the price of Bitcoin is touching the sky. Bitcoin is becoming more like an asset class than currency. As people are willing to invest in cryptocurrency, automatically there is an increasing demand for it. The efforts to bring Bitcoin-linked products are a direct result of this growing demand. It is the basic supply-demand theory of economics. As the supply of Bitcoin has remained fixed, its increasing demand is the reason for the massive price hike. Pressure from investors and speculators makes the case for an even further increase in Bitcoin prices in the near future.

3. Successful beta test of lightning protocol

The major reason for Bitcoin's meteoritic price hike can be attributed to the successful beta test of Lightning Network, proving the software to be interoperable. The lightning network is an overlay network, built on top of an existing Blockchain- in this case, Bitcoin blockchain. The decentralized network enables instant payments across a network of participants using smart contract functionality in the Blockchain. This technology has definitely helped to ease the payment method with Bitcoin. The lightning network will allow the transactions to remain private and then broadcast the activity on the public network.

So, how the lightning protocol is helping in Bitcoin transactions?

  • Blockchain smart-contracts ensure lightning-fast transactions without worrying about security.
  • The lightning network allows exceptionally low fees by transacting and settling off-Blockchain.
  • According to Lightning Network, millions of transactions in a second across the network is now possible.
  • Completing a transaction outside the main Bitcoin Blockchain helps to avoid congestion and ensures transaction speed.

The unparalleled demand of Bitcoins has forced some companies to take Bitcoin trading seriously in a much formal and established way. The growing interest and investment not only attracted the individual buyers but the traders and investors as well. This can be a clear indication that Bitcoin price will touch new record levels in near future.

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