Will 2016 be the best year yet for Bitcoin?

The author Tuur Demeester is an independent investor and the editor-in-chief of Adamant Research, which was founded in 2015 and provides a briefing service to users every month.

2015 was another rollercoaster year for Bitcoin: its infrastructure development was amazing, there was a lot of debate about the 'blockchain' and Bitcoin's scalability, and against this backdrop, the price of Bitcoin fell to $150 and then rose to a high of $500.

Let’s first review the ups and downs of Bitcoin’s financial history, and then look forward to its future in 2016.

Here is my brief summary of Bitcoin’s financial history:

2009-2010: Conceptualization

This was a period in the prehistory of Bitcoin finance, during which the tokens generated by the Bitcoin software had little value.

A lot of technical and economic discussions took place during this period, and core developers filled many gaps in the Bitcoin source code.

2011: First Bubble and Experimentation

Several major Bitcoin exchanges began to compete for users, with Mt Gox becoming the dominant player during this period. Then Silk Road emerged, Bitcoin payment processor BitPay was born, and Bitcoin also experienced its first price bubble, rising from $1 to $30.

2012: Gambling and leverage

After several major Bitcoin thefts earlier this year, the community's need for Bitcoin storage began to grow, and several new wallets emerged during this period.

Amid the price frenzy, speculative and leveraged instruments were born (Bitcoinica), gambling apps (Satoshi Dice), altcoins (Litecoin), and mining (Butterfly Labs).

2013: Mining boom

After several major news media issued the obituary for Bitcoin, Bitcoin came back to life and its price began to rebound strongly in the spring of this year.

The stories of early participants getting rich quickly also triggered a wave of Bitcoin mining craze.

In the last two months of the year, Bitcoin reached its price climax, breaking through the $1,000 mark. During the year, the computing power of the Bitcoin network also increased from 20 Th/s to 9,000 Th/s.

2014: Altcoins distract investors

After realizing the disruptive potential of Bitcoin technology, the VC world began to wake up. In this year alone, VC institutions invested approximately $300 million in Bitcoin startups, which is four times the amount in 2013.

However, against the backdrop of a speculative boom, the over-enthusiasm of hardware manufacturers and the surge in network computing power, coupled with a precipitous drop in coin prices, have rendered many miners unprofitable or even bankrupt (the author also lost money as a result).

In response, altcoins began to swarm around this period, trying to solve some of Bitcoin’s problems and offering some promises… or no promises at all, like Dogecoin. Bitcoin speculators saw altcoins as another opportunity, and 2014 became the stage for several altcoin bubbles.

Bitcoin in 2015: Blockchain hype and a maturing ecosystem

The consolidation period of the falling price of Bitcoin has caused many stakeholders to suffer. However, the underlying technology of Bitcoin, a powerful engine, has begun to roar.

With limited speculative interest and 3,600 new BTC being pumped into the market every day, the price of Bitcoin has been bleak for much of the year. A large number of Bitcoin investors have sold at least some of their holdings, which are slowly being transferred to new, more sober investors.

Many Bitcoin startups, often due to a lack of entrepreneurial management experience, did not survive this year. The funds raised in 2014 did not allow them to last long, especially when the company could not escape the label of "pre-revenue".

At the same time, the Bitcoin mining industry has also experienced a reshuffle, with many small miners starting to give in, while larger miners have the advantage of low-cost operations. Due to economies of scale and the birth of a new generation of mining chips, the computing power of the Bitcoin network has increased from 300p to more than 600p.

However, against the backdrop of low Bitcoin prices, Bitcoin adoption has continued to increase, but often in fringe markets such as gambling, darknet markets, and remittance applications to escape capital controls. As a result, transactions on the Bitcoin network have steadily increased to 3 tps (before expansion, the Bitcoin network supported a maximum of 7 tps).

By the summer, the question of how to increase bitcoin’s transaction capacity had become a hot topic, and the debate raged until December’s Bitcoin Scaling Symposium in Hong Kong, where a semblance of consensus seemed to emerge.

Perhaps out of frustration with the discord and pessimism in the bitcoin community, a cry from the fintech world began to rise: “It’s not about bitcoin, it’s about blockchain.”

They think Bitcoin may be too unstable, too rigid and radical, what they need is to bring innovation to the financial world, what they need is a private, scalable blockchain.

Nine major banks, including Goldman Sachs and Barclays (now 42 banks), announced they had joined the blockchain consortium R3, IBM began developing blockchain applications that do not require Bitcoin, and several blockchain projects received funding: Ethereum $15 million (crowdfunding), Chain $30 million, and Ripple Labs $32 million.

Google Trends: "Blockchain" (blue), "Sidechain" (red). The search peak for "blockchain" on June 9 was 9 times that of "sidechain". A company called Blockstream released the first open source "sidechain". This technology allows Bitcoin to move from the main blockchain to a higher-level protocol (sidechain). On these sidechains, Bitcoin can be given new features, such as high-speed transactions, confidentiality, smart contracts, and stock issuance.

However, the media attention the technology received was negligible.

Finally, against all odds and amidst all the skepticism and scrutiny, the price of Bitcoin finally broke through the $300 resistance level on October 27.

There are many reasons for the price increase. Some media claimed to have found the creator of Bitcoin, Satoshi Nakamoto (which has been proven to be false), and the resulting publicity led to increased public attention on Bitcoin. (Translator's note: Some people also believe that this is the reason for the MMM Ponzi scheme).

Outlook for 2016

Here’s how I expect Bitcoin to perform over the next 12 months.

1. The Bitcoin network will expand

After months of debate, I think 2016 will reveal the decision on how the Bitcoin system will scale in the coming years.

At the roundtable discussion at the Hong Kong seminar, for example, Pieter Wuille's 'Segregated Witness' proposal, and Adam Back's BIP2-4-8 proposal.

I expect there will be a solution that will be implemented by next summer, and then we will move on to further scaling through technologies like sidechains and the Lightning Network.

2. Bitcoin will shine as a safe haven asset

I expect global markets to become volatile again and I will see liquidity issues erupt.

As a result, funds and investors will seek to hold assets with low counterparty risk, and I think Bitcoin will be one of them, much more than in previous years.

3. Sidechains can be understood as a major technological breakthrough

Similar to how Bitcoin overcame accusations of being a Ponzi scheme in its early stages, sidechain technology is currently facing skepticism and distrust.

I expect the development of sidechains to get even better as more operational sidechains come online and their utility and open source nature are revealed to the world.

4. Commodity giants will get involved in Bitcoin mining

Faced with a bear market in commodity prices, which means that demand for electricity will fall, some large companies will partner with Bitcoin mining companies to provide them with the legal framework and infrastructure to allow Bitcoin transactions to take place in some of the world's most impoverished regions.

5. Bitcoin remittance network will be further strengthened

Bitcoin exchanges will integrate with each other, more Bitcoin ATMs will be deployed, and there will be more and more Bitcoin-related remittance platforms, allowing more people to use Bitcoin as a tool to send their money to their loved ones back home.

6. Bitcoin block reward halving will have a positive impact on Bitcoin price

By mid-July 2016, the reward for Bitcoin mining will be halved, and the number of Bitcoins generated per day will drop from 3,600 BTC to around 1,800 BTC.

In this way, the supply of Bitcoin will drop from an annual growth rate of 9.17% to 4.09%, and the influence of miners on the Bitcoin price market will be weakened.

I look forward to the block reward halving, which will have a positive impact on the price of Bitcoin.

7. Investors will be surprised

Every year when I invest in Bitcoin, I am shocked and amazed.

In the Bitcoin community, developers come up with new programs and solutions every day, competition is fierce, investors are eager but inexperienced, and banks and governments are uneasy and impatient.

Bitcoin technology is only seven years old, and Bitcoin as a financial asset is only five years old. What I expect to happen over the next 12 months will be amazing.

For the above prediction, I think there is a 75% chance that it can be achieved.

2016 is shaping up to be an incredible year for Bitcoin, and perhaps this is the year investors finally realize they can’t help but take notice of the paradigm shift in money and finance.

Original article: http://www.coindesk.com/2016-bitcoin-best-year/
By Tuur Demeester
Compiled by: Satuoxi
Source (translation): Babbitt Information (http://www.8btc.com/2016-bitcoin-best-year)