Bitcoin was dubbed the worst investment of 2014. As predicted however, 2015 has seen the continued fall in value of the currency that was supposed to fuel the digital age. <\/p>\n
Picture: Harald Groven <\/p>\n
In the last 10 days alone, it has lost 26% in value. <\/p>\n
If 2014 was a bad year for the digital currency, 2015 looks like it will be even worse. Barely days into the year, UK-based Bitcoin exchange Bitstamp was hacked and 19,000 Bitcoin stolen. At the time, this loss was valued at $US5 million. Bitstamp has since come back online, with revamped security from BitGo. It may however, all be a bit too late. <\/p>\n
Hacks of Bitcoin exchanges have come to characterise the Bitcoin world. It isnt something that is necessarily inherent in Bitcoin itself, but more of a feature of the types of companies that have sprung up around the troubled technology. At best, the hack of one-time leading Bitcoin exchange Mt Gox, was a result of sloppy coding and business practices. At worst, it was an inside job, defrauding its customers of $487 million. <\/p>\n
A more ominous problem has cast its shadow on the future of Bitcoin. Bitcoin relies on people to engage in mining to validate every exchange of the virtual currency. Miners, do some agreed calculations, and if they are fast, or lucky, enough, will succeed in winning some newly produced Bitcoin in exchange for adding the transaction onto the Bitcoin ledger called the Blockchain. <\/p>\n
The strategy of mining has become Bitcoins achilles heel. The design of Bitcoin dictates that the difficulty of mining will increase as more Bitcoins are produced and more miners get involved. This has led to mining being dominated by companies that can scale to the point where they can guarantee to earn a certain percentage of Bitcoins created each day. As Bitcoins value has dropped, the economics of the mining operation have changed, to the point that mining ceases to be economically viable. <\/p>\n
Cloud mining company CEX.io suspended their mining operations this week, declaring that it needed the price of Bitcoin to be at least $320 before it would be able to resume its operations. Unfortunately for them, the price has dropped even further since and the likelihood of it climbing back to $320 seems slim. <\/p>\n
Another mining company, CoinTerra, is being sued by a data centre provider for $5.4 million for unpaid fees. The cost of power alone to run CoinTerras services was $12,000 a day. <\/p>\n
The underlying protocol of Bitcoin does allow for the relative difficulty of mining to be eased if it becomes too hard for miners to stay in operation. In fact, this happened last month for the first time since 2012. It could theoretically continue to become easier as the Bitcoin price drops. The issue is however, that this wasnt supposed to happen. Bitcoins price was supposed to keep increasing as more Bitcoins came onto the market. <\/p>\n
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Why Bitcoin Is Failing<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Bitcoin was dubbed the worst investment of 2014. Continue reading