Bitcoin operates under the same basic principles as any other currency, including a foundation based on the trust of those using the currency. People believe the currency has value, and so it does. It’s only when that trust vanishes that a problem arises. Unfortunately, there are many currencies in history that have gone that way, and in many cases they collapsed not because of the free market, but because of a controlling interest meddling in the free market, or because of outside factors, namely war. Bitcoin is a different type of currency with fewer of the same weaknesses as outdated paper currencies. It operates without any controlling organization overseeing it, so it responds to the whims to the market entirely. This shared responsibility amongst those who use bitcoin is what keeps the currency afloat, and it has remained afloat for over seven years now.
The Will Of The People
Bitcoin, and other cryptocurrencies like it, require trust in order for them function. In reality, all currencies require trust, or they would not be viable. If the majority don’t agree that a currency has any value, then it no longer has any value. People have trusted paper currencies for years, despite the fact that these currencies are backed by institutions that regulate and control the flow of money, and therefore the flow of value. Even with the rampant corruption in the Federal Reserve and the masked frailty of the American economy, everyone continues to have faith that the US dollar has value.
Bitcoin is entirely different from the tired and corrupt monetary system we currently have in place. Bitcoin is not owned or operated by anyone, and there are no regulatory agencies that preside over it. The fluctuations in the price of bitcoins is due to the flow and ebb of the bitcoins as they change hands. Not only that, but there is a finite number of bitcoins in existence, thanks to the way the network operates. The bitcoin system protocols would have to be changed to allow for more, but the more likely scenario is that bitcoin values will drop gradually until there are no more left to create, and possibly even after. It is possible that bitcoins may be broken into smaller units in order to satisfy the needs of a larger population using the system, which would work similarly to a stock-split.
Any semblance of stability or fortitude that is felt toward a currency is strictly artificial, even if it is what keeps the currency going. Currency is no more than a giant shared illusion, but as long as the illusion remains intake, the system works. People are far more likely to trust bitcoins, simply due to the nature of the system. It is inherently more trustworthy just because of the lack of overarching regulation alone. If the American monetary system can thrive in its current state, there is no reason whatsoever why a cryptocurrency like bitcoin couldn’t do the same thing.
Another reason to trust bitcoin is that it relies on a shared responsibility to the investment. That means people who use bitcoin have a direct interest in keeping the system working, and as it continues to expand and more people join, the system’s overall value increases due to the input from new sources of value. If you use bitcoin, it is in your best interest to not only protect the system, but to nurture it by converting others into bitcoin users. A currency that isn’t properly cultivated will never take hold, and instead it will become a black hole of value that easily could end with the total collapse of the currency.
What’s The Risk?
Even though bitcoin theoretically should be more inherently stable than a regulated currency, that doesn’t mean it will become the first official cryptocurrency of the planet. Speculating about the future is never a great idea, because there are far too many factors to consider. From a logical standpoint, there is very little risk in bitcoins at the moment. The currency is thriving and has been for many years, but there are other cryptocurrencies out there. Perhaps another could come along and overtake bitcoin, although that seems unlikely thanks to bitcoin’s head start. However, if a new option comes along that is inherently better and people start to switch over, the immediate reaction to the bitcoin community could be harsh. The price of bitcoins could fall dramatically until they are worthless, but this is a very unlikely scenario. But it does exist as a possibility.
No investment is save from failure, even the US dollar. It is a currency just like any other, and if people lose trust in the value of the dollar, the end of that currency won’t be far behind. Fortunately, there will be cryptocurrencies like bitcoin to provide a better system for the world.