There are bubbles that explode for exogenous reasons, and there are other bubbles that explode from within. The Bitcoin bubble and other crypto-coins still do not know how and when to finish puncturing, but what is increasingly clear is that the bubble exists. The fact is that there is a compelling reason that it’s meteoric and rise (and inevitable crash) continues that comes from within the Bitcoin ecosystem itself.
For greater contradiction, this motive is also intrinsically related to the more original nature of the king of crypto-currencies, and that in the end it may end up meaning its own demise.
The value of crypto-currencies is in trust
We chronicled how Bitcoin was suffering an important fork that could divide the community, and even more dangerously, how it could also decimate trust in the crypto-currency. So that you can correctly weigh the importance of this risk, let me remind you that the value of a crypto-currency lies in the trust of its holders…and nothing more.
From Fork to Fork
Before proceeding, I will briefly explain what a “fork” in the crypto-economy is. It is from the software development world. Anyone can take an initiative apart from the creators to add new functionality, which creates a fork differentiated from the main fork and the original software. With the crypto-coins the same thing happens, in fact Bitcoin is based on software whose code is public, and which anyone can copy, modify and implement: that is, anyone can make a fork. In purely software terms, a fork has no more implication than the existence of a new program similar to the original with a community of developers behind it.
But the consequences of a fork of crypto-coins go far beyond simply enriching the software ecosystem with a new member. Bitcoin was conceived as a large-scale economic experiment, with a strong technological base, in which all the economies of the planet were to be forcedly involved. And as in any economic experiment: the future is about to be written, and it is almost always unpredictable and risky due to its potential consequences.
There are different types of forks, mainly differentiated based on the compatibility with the previous version, the most important differentiation being that between a “hard fork” (the old version is not compatible with new, and may lead to a new and different crypto-currency) and “soft fork” (the old nodes are still compatible with the network).
As if that were not enough, with that important and recent fork to which the Bitcoin ecosystem has already been subjected, the truth is that it has only been one of many, forming a dangerous succession of fork after fork that will seemingly never end. In total, Bitcoin has seen 9 forks so far, a figure not inconsiderable given its short life span since the original Bitcoin was born back in January 2009.
It is very remarkable and significant that the successive forks in the Bitcoin ecosystem are produced at an obviously increasing rate. But there is a second aspect that is also very relevant, at least in face of the common investors who are lately coming to the Bitcoin fever.
What mental “fork” can we do to draw our own conclusions apart from the mainstream trend?
First of all, I am going to allow myself the license to insist again on the main conclusions to which the current trend of the crypto-market leads us; We do it simply for reasons of ease of understanding for new readers. The truth is that there are currently more than 800 crypto-currencies in Coinmarketcap.Â It is also obvious that not all of these crypto-coins will survive long (or medium) term, and also in the crypto-ecosystem, we do not know which specific coins will survive the bubble prick.
What we did know was that Bitcoin was very well positioned for it; in fact, it was the best positioned by market share and by brand image (not by functionality, for which Ethereum seems much more of the future). Bitcoin was (and is) the most mainstream currency and is known by Main Street, although it is also a good part of its bubble. This is so because it is the crypto-currency that the mass of citizens who run after prices flock to invest in mass, even though they barely understand it.
That brand image that made Bitcoin emerge as an example of solidity among so many volatile crypto-currencies is ending by dissociating that solidity with each new fork. And what is most paradoxical is that this weakness has come to Bitcoin precisely from its more democratic characteristic, for which Bitcoin’s future decision-making capacity resides in its own community, which can decide at any moment to split.
But all is not lost, since dealing with forks, we can not stop telling you about a concept little known in crypto-economics, but especially important for the subject that concerns us today. It is about the crypto-reconciliation. The continuous forks that are dissociating trust in Bitcoin can effectively be reversed, because with the crypto-reconciliation there is the technical possibility that the different Bitcoin children can rediscover their path again, and join forces into a single Bitcoin.
This is the best demonstration that economic experiments are needed by the just, because the future is always unpredictable even for the best designed software. The best option is to be able to count on previous tests under controlled conditions, because even when the software carries the futuristic prefix crypto, there is no 100% reliable way to anticipate the uncertain future.
Just as all software has its bugs and its lack of functionality that is corrected with later versions, the same can happen with a crypto-currency, with the aggravating circumstance that until the new version arrives, the economy may be hanging by a thread with the risk that it could end up breaking.
It remains to be seen in which economies the Bitcoin experiment in which Satoshi Nakamoto got us all is under controlled conditions or if, on the contrary, it has grown so much that it is already “Too Big to Fail.”
Applying the Granny Test
Finally, apart from these conclusions that are not new to our regular readers, there are other conclusions to be drawn from today’s analysis as a result of both fork and Bitcoin. But, to your surprise, I will not be the one to bring you these conclusions on this occasion. No, it will not be me, but, rather, your grandmother. Quite simply, the theory goes that if you are not able to explain something to your grandmother, then you have not understood it well enough yourself.
Let’s give it another twist to the theory, and also add that, assuming you have understood all the concepts of Bitcoin well, if your grandmother does not understand it, there is an added problem. Do the test, explain clearly the basic concepts: they are not so difficult, and you can verify for yourself that very likely, as you explain them, you understand perfectly concept by concept, and you will even be surprised at your ability to assimilate something so novel.
But what % of the masses are you? Exactly.