The bitcoin market is no stranger to controversy. Ever since its conception, there are sceptics that question the viability of bitcoin as an alternative to paper currency. However, even they cannot deny the numerous advantages of cryptocurrency especially when it comes to wireless transactions.
Due to the finite supply, others even call bitcoin “Digital Gold” and expect it to hold and grow in value over the years. As evidenced by the consistent rise of bitcoin prices, it is safe to say that they are right. But given its digital nature, security is perhaps the only persistent concern that can stain the bitcoin’s reputation as an investment.
The Bitfinex Hack
Back in August, more than $60 million worth of bitcoins were stolen by hackers from Bitfinex—one of the largest digital currency exchanges in the world. Although it is not as horrifying as the Mt. Gox hack that led to the loss of over $350 million, the more recent event raises the question if the mainstream world is really ready for cryptocurrency.
According to BitGo, the partner of Bitfinex for bitcoin wallet management and security, there is no evidence of a server breach after their internal investigation. However, some consumers still blamed the service for overlooking the withdrawal of nearly 120,000 BTC. Naturally, they should have investigated the withdrawal of such a volume before signing it off.
Shortly after the incident, the prices of bitcoin dipped as low as $480. But once again, the bitcoin market shown its resilience in bouncing back and recovering from its vulnerabilities. In fact, the corrections in bitcoin prices are seen as early a day after the hack.
How the Bitcoin Recovers
First of all, bitcoin exchanges are now subject to scrutiny and therefore drives them to reassess and strengthen their infrastructure. Given that Bitfinex is a large bitcoin platform, its significant short-term effect on the market is to be expected. For Bitfinex’s next move, they now offer a $3.6 million bounty to anyone who can recover the stolen bitcoins. This proposal, however, isn’t significant at all for the continued recovery of the bitcoin.
Remember that the setbacks caused by the Bitfinex hack led to a few mindset changes in the bitcoin community which, in turn, made the industry fundamentally stronger. For example, a lot of investors are now spreading their bitcoin assets in multiple exchanges as a sound risk mitigation technique. True, it’s still too early to tell whether any bitcoin platform is immune to future security breaches, but putting your eggs in multiple baskets is always a healthy practice for investment security.
A month following the Bitfinex incident, bitcoin prices has recovered most of the loss it sustained as the capital market continues to perform well. Within the first week of September 2016, the bitcoin opened at $571.68 and surged to $599.60 (4.9%) the next day.
By September 4th, bitcoin rose to $612.39, which is a 6% surge over the weekend. Confidence also rose to 87% from 86% from September 3rd. And by September 8th, it surged to a week-high of $628.75.
What’s driving up Bitcoin Prices?
Keep in mind that the Bitfinex and Mt. Gox incidents are not the only times a bitcoin exchange is hacked. There are other “digital heists” that cost a substantial amount of bitcoins like the Bitcoinica and BitFloor hacks in 2012. Time and time again, the investing world seems to preserve its bullish sentiment towards bitcoin.
Thanks to the low cost of deposit, speed of transfers, and privacy of transactions, bitcoin is also being adopted in several online industries as the primary cryptocurrency. One particular example is the growth of bitcoin in the online sports betting scene. Although most bitcoin platforms oppose the use of bitcoins for online gambling, there’s really no way to tell what a transaction is for unless bettors reveal it themselves.
According to Vijay Michalik, research analyst at Frost & Sullivan, technology is also making bitcoin a lot easier to use. The Thunder Network, for example, allows bitcoin transactions to be executed more cheaply and quickly on a larger scale.
All in all, technology advances—particularly in online commerce—burgeon the need for a digital currency that makes wireless transactions easier. Other factors that drive up bitcoin prices such as world events also remain unaffected by hacking incidents. Bear in mind that bitcoin reached a 28-month high back in June, registering at $750.37 during the day’s trading session. Some of the known factors for this record is the fear of a Brexit, China’s fluctuating economy, and the optimism around the blockchain technology.
Lastly, don’t forget that the supply of bitcoins available for circulation is tightening with each passing day—unlike fiat money that can be printed as needed by the government. In the end, no matter how much hackers steal from vulnerable exchanges, they could never erase the core qualities that make bitcoin a robust cryptocurrency.