A preview of Predictions about Bitcoin
March 9, 2018 4:34 pm
A brief explanation of the expert predictions of Bitcoin values
Since the last three months, bitcoin prices have become high and dry. By 1 January 2017, a single bitcoin could be purchased for less than $1000 whereas it jumped to an all-time high of $19,783 on 17 December 2017. Presently, bitcoin is witnessing the steepest decline at the end of January is being traded at $11,200.
Bitcoin is of the view as a volatile asset and one of the disruptive technologies of the decade with its secure-proof, decentralized mechanism of functioning, financial skeptics which warn against holding the bitcoins due to their nature.
Many experts in the cryptocurrency industry have made attempts to predict the value of Bitcoin earlier. Co-founder of FundStrat and expert in predicting bitcoin prices, Tom Lee, has suggested that the amount of bitcoin could increase or even treble by the end of 2018. Bitcoin network involves users who are connected through addresses for transactions which would also increase the value both for network owner as well as users attached to it, as the number of users in the network increases.
The billion-dollar question is: Is the value of the bitcoin network proportional to ‘n’ (the number of bitcoin users) or square/exponential in n. A number of researchers looked at this problem in detail: (i) Sarnoff’s Law (by David Sarnoff) is more conservative in predicting value that varies linearly with n and found to be true in case of Television and Cable programming networks; (ii) Robert Metcalf, the inventor of Ethernet, is widely credited with Metcalf’s Law that states that value is proportional to square the number of users ; (iii) David P. Reed however proposed that in Group Forming Networks such as Facebook/Twitter, the value could be exponential as many sub-networks can be created; (iv) and finally a constant but more pragmatic estimate in the form of Zipf’s law (by George Kingsley Zipf) that states that not all connections between users are equally important and hence the value is much less and can be approximated to nlog(n). In other words, expanding the number of users from 10 to 20, the cost of the network only doubles (i.e., 10 to 20) as per Sarnoff; quadruples (i.e., 100 to 400) as per Metcalf; while it will be just slightly more than twice as much (i.e., 10 to 26) as per Zipf estimation.
Ethereum also like bitcoin is mainly used by firms that build various solutions using the blockchain technology. Ethereum was initially introduced as an ICO (Initial Coin offering) platform for investors to fund its development. Decentralized blockchain based electronic marketplaces alter the firm-controlled traditional markets by providing security, trust, privacy, lower transaction cost and transaction integrity. Such blockchain-based marketplaces improve matching, transaction facilitation and open up new frontiers in financial engineering, smart-contract based systems and so on.