What You need to know about bitcoin – Investment lessons from bitcoin’s current headache
Investment lessons from bitcoin’s current headache
Almost every bitcoin analysts that made a forecast on the digital currency will agree that the last two months has not tallied with very ‘bright’ projections for the virtual coin.
From the Chinese government’s relentless pursuit of a regulation for exchanges and transactions in bitcoin to stem capital flight, to Donald Trump’s election causing uncertainty in the investment and his growing interest in regulating the virtual coin, and now the fear about a potential hard fork.
We have explained what a hard fork is in previous articles, but for just to recap, a fork on a blockchain refers to a technical event that takes place as a result of diverse participants need to agree on common rule. To put it better, a fork happens when a blockchain diverges into two potential paths forward – whether with regard to a network’s transaction history or a new rule in deciding what makes a transaction valid.
A hard fork on the other hand is the software that introduces a new rule to the network that is not compatible with the older software.
Recently, a sizeable number of miners have taken to running Bitcoin Unlimited, popular and controversial alternative bitcoin software, forcing investors and analysts to consider a potential fork of the bitcoin network.
The price of bitcoin only recently went back to over $1000. By afternoon Wednesday, 29 March, 2017, it was trading at $1, 056 after it suffered a drop below $900 from an all-time value of $1,300 it reached in February.
Although analysts are divided on which direction to take in the case of a split, there may be quick lessons to draw from the situation.
The first is the need to constantly be on guard with forecasts. Financial analysts do not know everything. Despite the potential of bitcoin, it might be safe to say that most of the analysts who predicted bright prospects for bitcoin in 2017 may not have calculated the magnitude of the hurdles in front of it. Bitcoin Unlimited for instance was not a 2017 creation; it has been in existence since 2012 albeit on a low key.
It started to establish itself as a potential grassroots alternative to Bitcoin Core in 2015 when the group behind it asked Andrew Stone, an experienced developer from the United States to fork the Bitcoin Core codebase. This was successfully accomplished and Bitcoin Unlimited was born. How the 2017 predictions from many top analysts failed to take cognizance of the potential of Bitcoin Unlimited to disrupt Bitcoin Core is a mystery and leads us to the next point.
Get as much important details as possible before you invest in any enterprise. Relying on the predictions of the most respected analysts in the segment you are interested may not be enough. Do not be in a hurry to conclude they know everything. There may be signs the experts are not seeing. When you are in doubt, ask a critic or just wait until you know more.
Whether a hard fork happens or not, the price of bitcoin will stay competitive enough for investments but it is almost impossible to correctly predict where it will cap by the end of 2017, hence the need to not put all your eggs in one basket. Diversify your investment in order to cushion the impact of a potential shock.