Crypto and Blockchain: A Future Bitcoin Price Prediction

This Bitcoin price prediction article was written by Michael Shpits, a Financial Analyst at I Know First.

Summary:

  • Introduction to blockchain and cryptocurrency.
  • What is Bitcoin and how do subsequent generations of coins differ?
  • A Bitcoin price prediction and the future of cryptocurrency.

Blockchain and cryptocurrency are popular buzzwords in today’s world. To some they invoke ideas of secret transactions in the depths of the dark web. To others, they stoke thoughts of an ever evolving freer society, one unbound from central control. Perhaps to those in between they were just passing topics they saw in a YouTube video once. So what do these words truly mean, and what are their impact on tomorrow’s world? More importantly, what does Bitcoin have to do with it? To understand Bitcoin and make a Bitcoin price prediction, we must first understand the technology behind it. We must enter the world of blockchain.

Intro to Blockchain

Invented in 1991 by Stuart Haber and W. Scott Stornetta, blockchain was presented in an academic paper as an idea to cryptographically link blocks in an append-only structure, mainly for time-stamping documents. But, what does this mean?

A common definition for blockchain is a ‘distributed, decentralized, public ledger’. Blockchain, in a sense, is exactly what its name describes. It is a chain of blocks, with each ‘block’ being a metaphor for digital information that is stored in a public database, or the ‘chain’. Each block stores information on three main things, the transaction completed (date, time, and value amount), participants (name or digital signature of sender and receiver), and a unique identifier called a ‘hash’ to distinguish it from other blocks.

How Blockchain Works

A “block” can store several thousands of transactions, depending on the memory size of each one. Once a transaction occurs, a network of individuals opt to give the computing power of their personal computers to verify it for a small reward. This is called ‘mining’, and its fragmented delegation of responsibility is why blockchain is referred to as decentralized.

Source: ComputerWorld (Forrester Research)

Once verified, the amount, digital signature (wallet address), and transaction date are all stored in the block. The block receives a hash (unique identifying code) of the most recent block in the blockchain. Once someone ‘hashes’ (or ‘mines’) the block, it adds to the end of the blockchain and becomes publicly visible to everyone. You can find an example of a blockchain here for Bitcoin’s public ledger.

Appeal of Blockchain

Blockchain is lauded for its decentralized and secure nature for the following reasons. A blockchain is managed and constructed in a way that is very difficult to hack or overpower.

Each block stores its own hash and the hash of the previous block. Since it comes from a mathematical function based on what data is stored in the block, a hash changes in tandem with any alteration. If a hacker wants to change a transaction’s Bitcoin amount, the hash of both that block and the next one would change. This never-ending quest to cover one’s tracks by changing the following block’s data is why it is nearly impossible for a hacker to alter a blockchain.

An example of an actual Bitcoin transaction. Here you see the unique hash, bitcoin amount, and digital signatures of the participants (wallet addresses).

A network of computers must also verify or ‘mine’ the block in order for it to join the blockchain. This network, usually in groups called ‘mining pools‘, must show ‘proof of work‘ in order to be able to add a block to the blockchain. These computers prove they have done work by solving complex mathematical problems which try to generate a number below the ‘target for the hash‘, a number that a hashed block header must be less than or equal to in order for the block to be mined.

An example of a Bitcoin miner, the Antminer T17
Source: Amazon

To hijack the system, a hacker needs to use 51% computing power relative to everyone else. This is near impossible considering the number of machines at work and is why many regard blockchain, in this case Bitcoin, as secure and reliable.

Application of Blockchain

For the reason that mining is ongoing 24/7, transactions process near immediately, in contrast to mainstream credit card or banking transfers.

Furthermore, the secure nature of a publicly verifiable and visible ledger of transactions is imperative in ensuring accuracy. Nodes are participants in the blockchain, like a person with a Bitcoin wallet or a Bitcoin miner. Bitcoin as an example, has two types of nodes, full and lightweight. Full nodes store a copy of the entire blockchain’s history, used by participants like miners or servers. Lightweight nodes are basically digital wallets that only store the headers of blocks and allow users to complete transactions. With so many copies of the same blockchain, it is near impossible to hijack it without anybody verifying the change to be false.

These characteristics are crucial in a world where digital services need to be accurate, direct, and private. A Virginia company called BitCongress has released a white paper, an authoritative report on an issue and solution or decision on said topic, on what they feel could act as blockchain voting. Although others argue that blockchain has a long way to go before being used in such a capacity, the realm of possibilities widens when we incorporate blockchain into our thinking.

Pioneer of Crypto: A Bitcoin Price Prediction

In the aftermath of the 2008 financial crisis, an individual or group under the name Satoshi Nakamoto released a white paper. This white paper outlined the philosophy and vision behind Bitcoin. Shortly after in early 2009, Nakamoto mined the first ever Bitcoin block. This ‘genesis block‘ had the phrase “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”, reflecting that day’s headline from The Times, a British newspaper. To some it marks proof of the date the block was mined, for others, it is something more… it is a nod to the shaky financial institutions which brought about the Great Recession, hearkening for a redemption in the form of cryptocurrency.

Source: Coindesk (Bitcoin Historic Price)

From when it was first released, Bitcoin has risen to the price of nearly $10,000 as of today, with some making a Bitcoin price prediction that it has yet to reach its peak historic price.

Although Bitcoin pioneered cryptocurrency, it has remained a sole currency and nothing else. Anyone starting their own blockchain project had to create their own blockchain. Instead, others saw a vision for blockchain that extended beyond a singular model. This brings us to the second stage in cryptocurrency, Ethereum.

Ethereum: The Next Generation

A Canadian teenager by the name of Vitalik Buterin noticed that whenever someone needed to start a blockchain project, they required a separate blockchain to work on. Instead, he envisioned an approach similar to the internet, a unified blockchain for anyone to based their projects off of. This vision, Ethereum, would improve on Bitcoin by providing a Turing-complete programming language that could handle structures like ‘for loops’, which would allow for the application of smart contracts.

Smart contracts are code structures that execute when a predetermined condition is met. This allows for deeper utility than just a simple transaction model. Smart contracts can be used in financial services for secure and streamlined contract execution, or record storage and contract term verification in healthcare or insurance. This ability allows for cryptocurrency to move from being just an asset to an instrument.

An example of a smart contract on Ethereum. Bitcoin cannot support this functionality.
Source: BlockGeeks (Ethereum.org)

The Ethereum platform’s ‘coin value’ derives from the central platform’s coin called Ether. However, Ethereum allows for cryptocurrency projects to use it as a platform. Many of the coins in issue today are ERC-20 tokens, currencies that run on the Ethereum blockchain. Tokens are another name for coins that are not native to their own blockchain. Bitcoin is a coin, since it is native to its own blockchain. Chainlink on the other hand is a token, since it started on the Ethereum blockchain.

Source: CoinDesk (Ethereum Historic Price)

With new coins and tokens coming out, innovation is sprouting in the cryptocurrency world to tackle today’s issues. Projects consistently work to improve scalability, with certain coins reaching thousands of transaction per second (TPS) versus Bitcoin’s maximum seven TPS. Other coins aim to increase privacy such as Monero, whereas others try to work on transaction times and storage efficiency, like Litecoin.

The Future of Crypto

Since Bitcoin’s inception in 2009, crypto has come a long way. The Internal Revenue Service (IRS) in recent years has brought cryptocurrency to the list of taxable property. IRS forms like the Form 1040 now ask whether you have transacted in virtual currency. A privacy concern to some, others see the writing in between the lines as the government now authenticating virtual currency as a legitimate asset.

Exchanges providing cash-to-crypto transactions for main coins like Bitcoin and Ethereum such as Gemini have sprouted to meet demand for the currencies. Regulations now govern US exchanges like these, who now comply with cyber-security, capital reserve, and banking standard requirements.

As of July 2020, there are a total of 19,420 venues that accept Bitcoin as payment. With more countries legalizing or recognizing Bitcoin and other virtual currencies as legal tender, the amount of venues could be even larger. There are also thousands of Bitcoin ATMs, as well as for other coins, which have exploded in number during recent years.

In terms of Bitcoin itself, a significant dispute exists whether it will remain the main cryptocurrency or have another coin that improves on its technology replace it. A Bloomberg report suggests that if 2020 follows similar Bitcoin price patterns like in 2016, the coin will reach towards a price peak of $20,000. With Bitcoin’s market cap at $170 billion as of July 2020, it holds over 60% of the market share in the virtual currency scene.

Source: CoinMarketCap

Retailers and institutions who are coming around to the idea of Bitcoin or have already adopted it will not likely switch from it anytime soon. Whether or not another coin provides a better virtual currency solution than Bitcoin is irrelevant to market dominance for the time being. Bitcoin’s pioneering position in the community will remain the main force for many years to come, with coins like Ethereum coming close but not able to overtake the giant just yet.

If current trends continue, we will see strong innovation in the realm of blockchain and adaptation of mainstream businesses in accepting cryptocurrency. As we see today, more and more companies are accepting cryptocurrencies, ATMs are providing cash-for-crypto services, and legal entities including entire governments are recognizing them as legitimate forms of assets.

Third Generation of Crypto

Innovation has seen no sign of stopping either, with projects like Cardano changing the way we see crypto. Cardano and its native coin ADA are a third-generation blockchain platform. The first of its kind, Cardano is the first blockchain platform to come ‘out of a scientific philosophy and research-first driven approach’. Founded by Charles Hoskinson, a co-founder of Ethereum, the blockchain is programmed in Haskell, a programming language whose functionalities allow for better testing of code, ensuring correctness, and prioritizing security and stability, some of Cardano’s founding principles. Built along a roadmap which is to provide a foundation, decentralization, smart contracts, scaling, and finally governance, Cardano has in only five or so years climbed up to the seventh spot in total cryptocurrency market capitalization.

Projects like Cardano will likely pioneer the next generation of cryptocurrency and blockchain development. Today could be for blockchain and cryptocurrency the same way the 1980s were for personal computers, or the early 1900s were for automobiles. The best thing to do is keep our eyes and minds open, do our research, and invest responsibly. Good news is that we don’t have to make a Bitcoin price prediction on our own!

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The I Know First algorithm gives Bitcoin a strong bullish 1-year prediction in contrast to the relatively weakening US Dollar. Given that cryptocurrency and Bitcoin as its leader are set to be adopted by more entities into the near future, I recommend Bitcoin as a long-term buy and hold for one year going forward.

Here at I Know First, our algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing not only Bitcoin price prediction, but also daily predictions for more than 10,500 assets, including forex forecastgold price forecast, world indices, and individual stocks. Additionally, we provide special coverage for the latest Apple stock news. Our forecasts generated by our algorithmic trading tool are used by institutional clients, as well as private investors and traders to identify the top stocks to buy in the market and exercise the trade faster than the other market players.

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