Prices, taxes, and human capital are predictors for the potential of Bitcoin and other cryptocurrencies

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If you follow Bitcoin news even just in passing, you’ve almost certainly picked up on its volatile nature and recent history of highs and lows. In order to predict and understand what shapes that overall pattern, the key is to do research and look at which elements and trends influence an asset, whether it’s cryptocurrency or crude oil.

As with any market, the key to understanding value is based on larger patterns over the long term, not each individual spike or drop in Bitcoin price.

Given the fast pace of both business and technology and that cryptocurrency is at the intersection of those two industries, it follows logically that the trends which influence Bitcoin (or other token) value are rapidly changing. What kinds of trends and sources should cryptocurrency investors pay attention to right now?

CoinDesk author and Director of Research, Nolan Bauerle, first took a keen interest in cryptocurrency while researching money laundering on behalf of the Canadian Senate. Given his long experience in technology and finance, his recent comments from brunchwork at LMHQ are not just off the cuff remarks intended to sound clever. He saw how the nascent internet industry of the early 90’s came to impact nearly every single aspect of daily life in the developed world. Bauerle says patterns in blockchain and cryptocurrency today will have implications long into the future.

Based on his personal experience, Bauerle noted three key trends and predictions he believes are true of the future of cryptocurrency and blockchain.

1. Cryptocurrency is now viewed as taxable property.

Recently, cryptocurrency has seen a push around the world for greater regulation of Bitcoin and other tokens. Various governments have implemented stricter regulation such as China which announced that it will ban ICO investments. India has banned Bitcoin as a form of payment; more details on India’s somewhat nuanced approach are discussed in “India rejects cryptocurrency, but, plans to implement blockchain technology.”

Regulation isn’t just coming from governments, either, but, also the private sector. Facebook blocks ads for Bitcoin and ICOs in an attempt to prevent fraud and deception despite having taken virtually no meaningful response to allegations of Russian political influence peddling the social network. Lenders like MasterCard and Visa have reclassified Bitcoin transactions as “cash advances,” rather than purchases and are subsequently applying higher fees.

Despite these setbacks, Bauerle noted that cryptocurrency transformed itself positively in 2017.

Previously, digital assets were perceived as ephemeral. According to Bauerle, “people now see cryptocurrencies, something digital, as unique, uncopyable and unable to be counterfeited, and therefore physical property,” much like digital gold. 

Wall Street’s Tom Lee has also argued convincingly that despite the short term set backs, Bitcoin will regain its value by mid-2018.

In the face of regulation, Baurle argued that cryptocurrency could successfully argue for constitutional protection either as a form of property or free speech in the US legal and tax code.

2. Human capital determines the future of cryptocurrency.

Baurle is optimistic and confident that cryptocurrency will continue to advance in the next decade because of the talent that’s working in the industry. “Great minds have been attracted to the cryptocurrency industry. The enthusiasm, intelligence and human capital is there to make it work,” he elaborated.

Decentralization means technology gets directly into the control of more individuals which will ultimately drive cryptocurrency innovation and accessibility, resulting in a positive cycle of growth and innovation. By 2020, there will be “a redeployment and a recalibration of cryptocurrencies,” resulting in potential and utility yet unknown.

3. Cryptographic technology has enormous potential.

The technology behind encryption powers everything from online banking to digital signatures already. Simply put, cryptographic technology encrypts and decrypts messages  or records (such as currency in Bitcoin’s case), so, only the intended recipient can access it and no one along the transaction chain can manipulate it. 

One of the earliest examples of cryptography dates all the way back to the 1940’s with the Enigma code used by German forces in World War II to relay encrypted messages. It was “cracked” or decrypted by brilliant English mathematician Alan Turing.

“Bitcoin is the widest deployment of cryptographic technology in the history of the world,” Baurle explained. After all, the word “cryptocurrency” itself is derived from “cryptographic” and “currency.”

Bitcoin uses public-key cryptography, which is extremely sophisticated and the reason blockchain is inherently secure by design.

Each user with a cryptocurrency wallet has a private key that confirms their identity and a corresponding public key. It’s a level of cyber-security that didn’t exist even 11 years ago and is now confidently used by every day people around the world.

Even if Bitcoin doesn’t succeed as a currency, it’s underlying cryptographic technology and blockchain have too much potential to fail. Just as few could predict how the simple websites of the early 90’s would lead to global juggernauts like Amazon, we can only speculate at the exciting possibilities cryptocurrency and blockchain are beginning to create.

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