Ikuya Takashima -"Bitcoin, the Ultimate Guide to the World of Bitcoin"

 

"What risks does bitcoin face? 

Bitcoin and other cryptocurrencies go a stage further than fiat currencies. Because they are global currencies, they do not have any nation to back up their value. Thus, their worth is completely dependent on what the marketplace judges them to be. 

Bitcoin is no more than a series of symbols stored on a piece of software. By itself, it is worth nothing, just like the tulip bulbs of the Netherlands. The risk, therefore, is that something could cause Bitcoin to lose all legitimacy. This can happen to any currency, which is why most nations also stockpile a reserve of gold. The versatility of that precious metal (for example, its ability to be turned into jewelry) means it always retains its value. But Bitcoin has nothing behind it. No nation, no precious metal. It is just a code. [...] 

But, some analysts claim, Bitcoin is extremely fragile. Its bubble will burst, and its value plunge towards nothingness. The bigger you are, the harder you fall, as the saying goes, and if people suddenly- lose their Bitcoin fortunes, they are likely to abandon the currency and allow it to die. This could happen virtually overnight, in the worst case scenario."

"The way Bitcoin is issued plays a role in its value as well. This is often a force for good, but not always. Fiat currency issues are controlled by national government. They can manipulate the amount of currency in circulation for their own purposes. This is called quantitative easing, and is often used to kick start an economy that is struggling. Quantitative easing can be used to promote investment, to help address employment issues, and to control inflation. 

However, Bitcoin does not have the capability to provide quantitative easing. The amount of Bitcoin to be released has been set by its creators, and that is that. While this often encourages investment, because a limited supply generally increases value, as long as the demand is there, when demand falls Bitcoin does not have the ability to flood the market and regenerate interest. As a result, a long-term fall in value (such as in 2014) takes a while to address."