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Author : Bitcoins Basics 101 PDF Ebook by DAVID DODGE and BRIAN DIXON
For example, as mentioned, as more people snatch up bitcoins, the higher their value rises. That is, with more demand, the price will go up. Beyond that, it's going to be interesting to see younger generations begin to study the Bitcoin markets to come up with different ways to look at financial activity. Bitcoin Deflation And Economic Activity. While the future of Bitcoin does indeed look bright, there are some economists who are thinking ahead and say that the cryptocurrency may have a problem in the future due to deflation. The amount of bitcoins that will be produced is fixed at 21 million. This supply of BTC will be used to buy more and more goods and services while it could end up in deflation on a major scale. For example, say you come up with a product or service that costs you 1 BTC to produce. You hope to sell it for 2.5 BTC to make a hefty profit. You go to work setting things up, but when you launch to market, your product or service is only worth .5 BTC due to deflation that has happened while you were producing your product or setting up your service to sell online - and this could be a major stumbling block. As this happens, people are going to be more apt to hold onto their bitcoins because they will become more valuable. However, if no one is using their bitcoins for transactions, the whole system could collapse eventually. And there's a good chance people are NOT going to spend if they know that waiting a little while will give them more buying power per BTC.
It's this shrinking price versus cost margin that could really hurt Bitcoin. During deflationary periods, there's no good reason to keep investing current BTC in producing products or developing services to sell. This is going to affect both the people producing goods and services as well as consumers - who are going to want to wait a little bit until their money can buy more. This is just common sense. However, it may end up in what's known as a deflationary spiral - something that's difficult to escape. This is not happening right now because people are using USD or other currencies to create products or come up with services and then selling them by collecting BTC in return. This is going to change, however, as Bitcoin becomes more popular around the world. At some point, people are going to start trying to use BTC to invest in creating products and services and it's at this time that problems may begin appearing for the Bitcoin universe. The way to avoid this would be to keep other currency systems in place. This may - at some point - become difficult if not impossible to do if Bitcoin continues to increase in popularity around the world. As more people and businesses begin to rely heavily on Bitcoin, there's a chance that the deflationary spiral may begin, causing a lot of damage to people - and the whole system - along the way. While this is hypothetical and not a lot of economists have begun to study the Bitcoin market, it's still a possibility that may happen.
And this makes it an important issue that should be discussed publicly before the problem actually occurs. The problem is that there isn't enough interest in Bitcoin … yet. This is changing, However, and there's a good chance other economists and financial wizards will begin to look at the Bitcoin system in earnest. And this is a good thing on many different levels. Digital Currency’s Future Speaking of the future of Bitcoin - and other digital currencies - it's going to become more important to study different aspects of Bitcoin and other virtual currencies so that big problems do not arise and take everyone by surprise. A crash of the Bitcoin market is a possibility, and with billions of dollars at stake, it could have far reaching effects around the world. When you look at the global market, you can also see why Bitcoin and other cryptocurrencies are becoming more popular all the time. In many countries - from South America to Southeast Asia - many billions of people do not have access to traditional credit systems or even digital payments. Bitcoin may be able to open up a lot of possibilities for these people in the third world. And if that does happen, there's a good chance that Bitcoin will take off and begin to grow even more quickly as people begin to use it rather than relying on traditional financial institutions - which usually aren't benefiting the people on the bottom of the societal ladder. The benefits of Bitcoin to people around the world is really staggering when you step back and think about it for a moment or two.
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