There may only be 10 days left before the next Bitcoin surge

Bitcoin has now become a speculators' arena with fairness, openness, and common rules, but it is also a "lawless place."

Bitcoin price has increased again!", "Bitcoin has broken 5,000 again!" Such scenes remind people of the "Bitcoin craze" in early 2014.

During that global Bitcoin "carnival", Bitcoin rose to nearly $1,200 per coin, and the increase in two months reached 920%. But it was followed by a "sudden fall": in less than 20 days, it fell again to $400.

This performance, which is far more "exciting" than ordinary financial products, has truly brought "Bitcoin" into the eyes of most ordinary people.

Question 1: Why has Bitcoin risen in the past six months?

In the past six months or so, Bitcoin has made a comeback and experienced a "bottom-out rebound" in price.

Image via Bitcoincharts

In October last year, the price of Bitcoin was still hovering between 1,500 and 1,600 yuan. Now, after slightly breaking through the 5,000 yuan mark, it has fallen back to around 4,000 yuan.

Why has Bitcoin risen so much? The answer you find in the search engine is usually just two words: "production reduction".

Image via Bitcoinblockhalf

In another 10 days and 12 hours (that is, July 9, 2016), all Bitcoin mining participants will experience a "production reduction": as the smallest task unit in the Bitcoin mining system, the reward for each "Block" will be directly reduced by half from 25 Bitcoins to 12.5 Bitcoins.

This incident is like a bomb with a timer, which has been constantly touching everyone who has a "connection" with Bitcoin over the past six months.

Small question: some preset systems about production reduction and Bitcoin

Since most people know very little about Bitcoin, let us first give an extended "little explanation".

Various virtual currencies, picture from Onecoincrypto

In terms of classification, Bitcoin is undoubtedly a member of the "virtual currency". But long before the emergence of Bitcoin, humans have made several attempts to use "virtual currencies" that only exist on the Internet and other carriers, and all of them have ended in failure without exception.

These failures caused by various reasons eventually became the most valuable experience of the mysterious founder of Bitcoin, "Satoshi Nakamoto", which can be basically summarized into the following two points:

1. Virtual currency cannot be distributed at will;

2. Virtual currency cannot be issued indefinitely, and inflation must be guarded against;

Bitcoin mining farm, image from Cryptocoinsnews

Correspondingly, "Satoshi Nakamoto" also came up with a solution: the first point is what we usually call "mining" - virtual currency must be obtained through "work" (strict Hash calculations) and after paying time and cost (equipment, energy and others).

Another point is relatively "unknown": a quantity control system established by "Satoshi Nakamoto" since the creation of Bitcoin, including "the difficulty coefficient varies with the computing power of the entire network" and "every 210,000 blocks mined, the mining income will be reduced by half."

It is no exaggeration to say that Satoshi Nakamoto had already completely drawn up the future trajectory of Bitcoin when it was first created.

Image via Coindesk

"Block" is an important concept in Bitcoin mining, which represents a large amount of data waiting to be hashed. And the characteristics of hashing (hash operation), such as MD5, are also very obvious: even if you have the result of the operation, you cannot get the original information before the operation.

At the same time, Satoshi Nakamoto also set a standard interval for the end point of "solving a block" each time (not the computing time required for a block): 10 minutes.

However, since the computing power invested in "mining" is actually a floating value that continues to rise, "Satoshi Nakamoto" came up with a solution - set a "difficulty value" for Hash operations, and change the "difficulty value" every 2016 blocks based on the overall computing power in the Bitcoin mining network. This difficulty value will also affect the amount of computing power that all miners need to pay when calculating.

The result is that while computing power continues to increase, the process of Bitcoin generation actually remains very "smooth".

Since the generation of a block is actually a process of "approximate" intervals, the next question is how much bitcoin reward each block gets. Initially, the reward for each block was 50 bitcoins, which increased from 210,001 blocks to 25 after 2012, and from 420,001 blocks to 12.5 bitcoins next month.

This cycle will continue indefinitely. Although Bitcoin theoretically never stops increasing, it will approach a value infinitely, thus forming a typical asymptote in mathematics. Through integral calculation, we will get 20999999.97690000, which will also be the final number of Bitcoins.

By using this mechanism, "Satoshi Nakamoto" solved the "inflation" problem faced by virtual currency at the beginning of Bitcoin creation, and at the same time made a complete separation between the founder's human factors and the development of Bitcoin.

So what is the impact of halving?

Image via Ticketleap

From the perspective of Bitcoin output, the halving process only occurred in that one second, and it was also a "cliff-like" change. This means that the income of all "miners" dropped sharply to 50% in that second.

But unfortunately, the reason “Because miners’ Bitcoin revenue has been halved, the price of Bitcoin will definitely increase!” is actually not valid.

This is mainly determined by the current "mining community". Looking back at the development history of Bitcoin over the past seven years, the mining army has gone through three eras: "CPU-GPU-FPGA". The entire transformation process just reflects the "specialization and customization" of equipment in the matter of "calculating hashes to obtain Bitcoins". What everyone pursues is only higher efficiency.

Image from Asicshoesvbuy

The booming Bitcoin market has even boosted the chip sales of some traditional FPGA (Field-Programmable Gate Array) companies. However, since entering the FPGA era, Bitcoin mining equipment has also encountered bottlenecks after exhausting the efficient characteristics of FPGA and the current top chip manufacturing technology.

This has also brought the mining business into a relatively mature stage. The main force is basically only mining farms that reduce costs through large-scale deployment, and retail investors are rare. For those who have the ability to build mining farms, they rarely "sell the mined Bitcoin immediately". Under this premise, it can be predicted that the supply of Bitcoin generated by miners in the market will not change decisively due to the "halving".

"This is a slap in the face! It says above that it will rise, but then it says here that there will be no change." Don't worry, let me tell you what factor is most likely to become the main force driving the next rise in Bitcoin.

Several factors behind the rise of Bitcoin

Image from wallstreetcn

1. Bitcoin’s inherent speculative and risk-averse nature

As for "conventional", I need to quote a point I made in my article "Let's talk about Bitcoin again: Microsoft has also joined" at the end of last year:

Maybe it will never become a currency, but it will change a lot of things.

This is why I never agree with the statement that “Bitcoin is the gold of the virtual world.” Although Bitcoin is indeed scarce, Bitcoin itself and its production process are not linked to real equivalents.

So what is the value of Bitcoin? The answer is actually very simple: transactions, or in other words, the real currency used to trade Bitcoin.

Going a step further, why do people use real money to buy Bitcoin, which is not a currency in the virtual world? The answer is simpler: speculation, hoping to get greater benefits after investment.

Interestingly, in a report from the domestic media interface, an expert said:

The actual proportion of Bitcoin deliveries between Chinese people is about 80%.

There is even data showing that Huobi and OKCoin, the two major domestic Bitcoin trading platforms, account for 92% of the global Bitcoin trading volume. If combined with the decline in the Chinese stock market last year, the timing of the two coincides with a high degree of overlap.

This also reminds people of the cause of the Bitcoin boom in 2014 - the financial crisis of the Icelandic government. The similarities between the two also reflect another image of Bitcoin in the minds of global investors and the public: the easiest asset to obtain and the most profitable asset hedging option.

This also happened last Friday when the UK left the EU, with the price of Bitcoin rising rapidly by 22% on the afternoon of June 24.

2. The Bitcoin market follows the rules of "fairness and openness" and is also a lawless place

Image via Yieldjunkies

As an "ownerless" virtual financial system, the Bitcoin market is not as complicated as the stock market. There are no various equity changes or behind-the-scenes manipulations.

In the pursuit of profits, you only need to have "simple and crude" strength: either you have more funds than others, or you are better at operating funds than others, and you have better luck (yes, the Bitcoin market does not need too many predictions, but luck).

This relatively "fair and just" atmosphere is more "open" than the ordinary financial market, but also more "cruel". Especially for many "mothers" and "beginners" who enter the Bitcoin market for the first time, they still regard Bitcoin as virtual gold, but eventually become the money-giving boy.

Even today, there are still many people who believe that Bitcoin is actually a "Ponzi scheme", but the reality is that the blockchain technology underlying Bitcoin gives it the characteristics of distributed storage, thus making Bitcoin an invincible "cockroach".

In the foreseeable future, the Bitcoin market will continue to survive. Although countless people have sentenced Bitcoin to "death", as long as Bitcoin exists, it has the possibility of rising, which also has a "fatal" attraction to speculators.

3. Blockchain is popular, but it has nothing to do with Bitcoin

Image from Theconversation

The rise of the concept of blockchain, I have also explained in my previous article "You may not like Bitcoin, but you will still use blockchain to buy securities in the future":

The blockchain is actually evolved from a set of rigorous encryption algorithms, and its security issues can even be proven by mathematics. It is simple and impeccable. Through the complex setting of public and private keys, the blockchain network distributes the ledger of all transactions in the entire financial network to each client, while ensuring that everyone can only modify their own property.

Blockchain is essentially a complete solution for data encryption and verification. Under the premise that a series of applications such as big data and machine learning have received full attention, the huge potential of blockchain technology in building the future data architecture has emerged, and the value of data is the most important reason for its attention.

This is why major financial institutions around the world have joined the team of blockchain technology development, and blockchain technology is expected to play its own advantages in copyright management and encryption verification systems through certain transformations.

Even Zhou Xiaochuan, the central bank governor who once "sentenced Bitcoin to death," publicly stated in February this year: "The central bank is also studying digital currency," which shows the prospects of blockchain technology.

However, it is important to note that after Bitcoin became famous and more people realized the value of blockchain, the two actually had a tendency to "part ways". The Bitcoin market, which lacks applications and is not supported by the government, has remained "immortal" and speculative by relying on blockchain technology; while blockchain technology is about to undergo a transformation.

It is most likely to increase, but you can't blame me if it doesn't increase.

Image from Techinsider

After so much analysis, let's summarize it:

• Bitcoin production reduction has little impact on supply and demand;

• Bitcoin is now a purely speculative market;

• Bitcoin has relatively “fair and open” operating rules;

Such a "Colosseum" is the "paradise" that almost all speculators dream of. At the same time, for beginners such as "Chinese aunties" who do not understand the relevant systems and technologies of Bitcoin, they are not aware of the risks inherent in Bitcoin and they just flock in when they see the rise.

As mentioned above, the influx of this batch of new funds, while promoting the trading volume of Bitcoin, should also drive up the price of Bitcoin. Once the price of Bitcoin rises, it will in turn encourage more beginners to invest more money under the temptation of profit.

The end of this cycle will be determined by organizations and institutions that hold a large amount of Bitcoin. What will follow is another sharp drop in Bitcoin prices and the regret of a group of "Chinese aunties".

The reciprocating cycle of “rise-fall-flatness” will continue to appear in the future Bitcoin market. The public rewards of this “Colosseum” are indeed generous, but you need to “risk your life” first.