Slower growth in the supply of Bitcoin will increase the price of the cryptocurrency in 2016, as demand outstrips the number of Bitcoins available.
Cryptocurrency is a digital currency not regulated by a central bank wherein encryption techniques are used to regulate the generation of units of currency and verify funds transfer. Bitcoin is the world’s first widely used cryptocurrency.
New bitcoins are formed as reward for proofs of work provided by participants using a data structure called the blockchain, a single global ledger maintained by an open distributed system. Participation requires the use of signiﬁcant computational resources. A participant who proves to have exerted enough resources with a proof of work is allowed to take a step in the protocol by generating a block in a process called mining. Participants are then compensated with newly minted Bitcoins.
When the Bitcoin was invented in 2008 by Satoshi Nakamoto (the founder(s) whose identity remains a mystery), its program was designed so that the reward would be halved roughly every four years, in order to control inflation. This will happen again in July 2016. The currency is also designed to have a finite supply of 21 million bitcoins. This is expected to be reached in around 125 years. There are currently 15,007,925 Bitcoins in circulation.
Although some governments are warning their citizens against the use of Bitcoins, demand for the cryptocurrency is rising, as more big companies and authorities are accepting payments in bitcoin while others are showing improved interest and investment in the blockchain technology. Just like the age-long principle of supply and demand, the price of Bitcoin is expected to surge in 2016.
Founder of NairaEx, a Nigeria-based Bitcoin exchange David Ajala sees a bright future for Bitcoin in the country.
“Bitcoin offers a good alternative to cash and I think it can also be used in payment methods for websites and other services that Africa and especially Nigeria is developing,” Ajala said.
A bitcoin was equal to $230 on September 26 and by October 26; the value had risen to $287. As at December 26, the price of the cryptocurrency has risen to $424.13 and by 2016, it could rise above $1,100 next year and $4,400 by the end of 2017. In many ways, the Bitcoin qualifies as an asset class; investors with high risk tolerance should take note of the trend.