Thus far, 2014 has been a hectic ride for Bitcoin, and the digital currency landscape is changing at a rapid pace. The naysayers have grown louder in their screaming of “Bitcoin is dead!”, and even the devout supporters have become uncertain about what is in store for Bitcoin in the near future. However, I am not worried at all.
Why Bitcoin, And Other Digital Currencies, Will Survive
The recent bumps only serve to reinforce the resilience of Bitcoin. With the death of Mt. Gox, which was the largest exchange for most of Bitcoin’s history, multiple small exchanges being revealed as scams, many governments tightening regulations, and several arrests related to Bitcoin related services, it seemed obvious to many outsiders that Bitcoin was finished. If Bitcoin were a company, as many confused individuals seem to think, then that thought process would be logical. However, Bitcoin is not a company. Bitcoin is an idea, and ideas cannot be killed in such a manner. The intrinsic value in the block chain, and the efficiency of decentralized network, rather than a third party business, handling currency transfers makes Bitcoin relatively invincible. Horrible events, like the ones previously mentioned, will have the opposite effect that the detractors expect. These issues will be corrected, the systems that interact with Bitcoin will evolve, and the next generation of exchanges, merchant services, and vendors will learn from the mistakes of their predecessors.
What Comes Next For Bitcoin?
Expect to see some amazing systems come online, or be announced, in the coming months. Exchanges will evolve to give users protection from theft, not just from hackers, but from the exchange itself. This can already be observed in 2 factor authentication and multi-sig Bitcoin wallets. In 2 factor authentication, a user’s funds can only be used or moved when a secondary authentication code is provided, often obtained using Google Authentication. With m-of-n transactions, multiple signatures, m, are needed to complete the transaction, rather than only one with traditional methods. For example, if using a method of 2-of-3 signature transactions, then the owner of a single signature would not have the ability to move funds. At least 1 of the remaining 2 signatures would be needed. An exchange could have a single key to sign transactions, while the user has another, and the final one is in the possession of a trusted arbitrator, or even possessed by the user in a way that would only be used in emergency situations. Generally the user would provide one key, and the exchange the other, to authorize transactions. However, if the exchange was taken offline for some reason, the user could use the emergency key, along with their primary key, to access their funds.
Other methods of protecting users, or giving additional functionality to Bitcoin, are being developed to help increase the accessibility of Bitcoin, and provide additional levels of security that will be required for mainstream acceptance.
How Will Bitcoin Be Built Upon? Will Other Digital Currencies Arise From It?
Side chains are being proposed, which would allow new block chains to be built off of the main Bitcoin blockchain. These chains would be backed up by the Bitcoins they are connected to, but allow for modifications to the way bitcoins function inside of them. Developers could create side chains for faster transactions, experiments in Bitcoin functionality, or any other idea that can be imagined by a developer.
Colored coins will allow users to tie stocks, securities, derivatives, tickets, etc. to a bitcoin, or bitcoins, in a way that will provide provable ownership. How this can be used is only limited to the imagination of the user that wants to color a coin. At the moment, most ideas are centered around finance and business, but that is not necessarily the only use.
Bitcoin is not dead, nor will it die anytime soon. It will continue to grow in a way that is not possible for traditional systems. The open source, distributed, and decentralized basis of Bitcoin creates incredible efficiency, and endless possibility. It allows for a type of natural evolution that is not seen in a business or system that is controlled by a singular person or group. Any idea can be proposed, developed, and released, and the market itself will decide it’s value, or lack thereof.