Why would no one want to trade bitcoins with me? Many possibilities, but four big ones stand out to me.
1. Something better could come along
2. The energy consumption makes it unfeasible
3. Bitcoin gets hacked
4. The speculation dies down
Indexer, I appreciate your response. I don't agree with it, but you're one of the first people in this thread that has talked about risk and what those risks are.
The reason why I've stated numerous times why I won't say whether or not Bitcoin is a good investment for someone is because determining whether something is a good investment for someone requires that we know what that person's risk appetite is and what their portofolio should look like to match that risk appetite. Some people like 100% stocks, some like a varying mix of stocks and bonds, some like some stocks, bonds, and a small percentage of high risk, high yield, etc. The point is, unless we know what someone's risk appetite is, then you can't give good advice on whether something might be a good fit for any individual.
I often here people talk about the speculative nature about bitcoin without really mentioning any specifics at all. People don't realize that speculation goes both ways. You can speculate that something will be worth a lot, but you can also speculate that something with be worth a lot less in the future. The only thing that decreases the speculative nature of any given investment is to lay out the risks, both inherent and residual, of the investment.
Rarely do I ever see people do this when they say "well someday bitcoin could go to zero". Sure, absolutely...gold could also go to near zero, Apple as a company could go bankrupt, and the US dollar could see hyper-inflation. All of these things have varying degrees of risk and saying that they
could happen without discussing the realities of such an occurrence isn't a proper way to do risk assessment. Some are more likely to occur than others, but unless you actually populate the risks and each of their likelihoods of occurrence, then you won't truly understand what the risk of the investment actually looks like.
So again, I'm not going to state whether or not I feel bitcoin is a good investment for the OP, but I can provide some additional thoughts on the given risks involved with Bitcoin as Indexer had:
Bitcoin's price is strictly supply and demand driven. Since it supply is statically hard-coded and deflationary, then that means the main driver for its price is simply demand. So if the price were to decrease, then that means demand would need to decrease. As Indexer mentioned, what are some things that would cause demand to decrease?
1) A better crypto-currency is developed. This could happen, but I feel the likelihood of this occurring is extremely small at this point. SegWit was enabled recently that will allow Bitcoin to develop advancements in its capabilities much quicker and without necessarily the need to hardfork. This means that any crypto-currency that comes along to try and supplant bitcoin as the market leader, not only needs to compete against the size of bitcoin's market itself, but also has to compete against the fact that any technological improvements that the competitor has can simply be implemented in bitcoin before a competing market ever gets strong enough. Take for example the RSK side chain that will allow for smart contracts to take place on the bitcoin network and be backed by bitcoin. This means that many of the technological features that Ethereum has over Bitcoin would then be able to take place on the bitcoin network. Here is a good article that also talks about why Bitcoin has such a massive market lead on other crypto-currencies and why it will be extremely difficult for others to supplant it as the leader. Keep in mind this article was written back in May before Bitcoin saw massive market growth, investment. development, and withstood several hardfork attempts against it.
https://medium.com/@jimmysong/why-bitcoin-is-different-than-other-cryptocurrencies-e16b17d48b942) The energy consumption makes it infeasible. I don't see this as a risk at all, and it actually isn't even in my risk profile for Bitcoin, but I'll address it since it was mentioned. The energy consumption of the Bitcoin network today is massive. That much is true. But it isn't unsustainable and it is actually a problem that I feel will solve itself. The amount of energy that it takes to solve a block is directly dependent on the difficulty of solving that block and the efficiency of the mining hardware. I see a lot of articles always compute the energy consumption of the bitcoin network in relation to the number of transactions it performs, but this is a useless calculation since the energy spent per block isn't really tied to how many transactions are in that block. There could be 1,000 transactions in a block or 1,000,000 transactions and the energy consumed to solve the block and add it to the block chain will be about the same give the same difficulty level at the time. Therefore, as the network scales and grows, the ratio between the number of transactions it processes and the energy spent will begin to decrease.
Also, there are layer-2 side chain possibilities such as the Lightning Network that will allow for an immense number of transactions to be processed on the equivalent computing power of a small server. This will allow the bitcoin network to process massive amounts of micro-transactions for a lot less energy than our payment systems are capable of now.
Finally, energy consumption is Bitcoin mining's business model. Unlike many traditional business that don't take power consumption into consideration, for Bitcoin mining, it is its business. Therefore improving inefficiencies and costs in energy is Bitcoin mining's main profit driver. This will likely lead to Bitcoin (as it already has been shown) to be a first adopter and main driver of more sustainable energy practices in the long run.
3) Bitcoin gets hacked. This is certainly a legitimate concern and it makes my list as well for possible risks to Bitcoin. This is a risk that could actually damage Bitcoin's price significantly. Bitcoin is a safe and secure network for value storage due to the fact that it is a decentralized and secure network. If this were to become compromised due to a vulnerability in the code, then that could posed a significant risk to the sentiment of the market to trust its wealth in the network. I don't feel that the likelihood of this risk is very high however. The security in the blockchain itself would still be valid due to the proof-of-work that it took to secure the blocks. The more likely scenario would be a flaw in the security of the wallets themselves or in the transactions that take place, but not necessarily in the Bitcoin network. Consumers are always in control of the wallets they use however and there is a massive number available. So in the event of a vulnerability in one wallet, the users can choose to move their funds to another. In the event of a vulnerability discover in the transactions that could allow for information disclosures or leaks, the Bitcoin network can always patch and hardfork to mitigate the vulnerability while the market holds transactions to prevent risk during the time. I don't think this risk is a massive risk to Bitcoin's long term value. Finally, Bitcoin uses many of the same cryptographic algorithms that the rest of the world users for security and has second layers on top of these to protect against failures in the cryptography. Most other traditional institutions are much more susceptible to cryptography failures than bitcoin is.
As far as quantum computer, this is not a very big threat to Bitcoin despite a lot of media attention around the subject. Most of the articles are simply clickbait due to the amount of attention that both bitcoin and quantum computer receive. The reality is that quantum computing problem solving is very limited in scope and Bitcoin has several features that protect it against the types of problems that quantum computing could be utilized in attacking. Furthermore, any advancements in commercially available quantum computer will not be immediate and Bitcoin will have plenty of time to upgrade in advance of this to sufficiently protect itself. Here is a good article regarding quantum computing and Bitcoin:
https://news.bitcoin.com/antonopoulos-bitcoins-protection-against-quantum-computing/4) Finally, government intervention could play a role in diminishing demand for Bitcoin. However, I feel that the time for this has long past. If democratic governments were to take a stance against Bitcoin, it would've had to have been well before it became an established market. Derivative markets are now becoming a reality and that means that there will be substantial institutional investment taking place that will rely on the Bitcoin market. Since this institutional money will likely be intertwined with other derivative bets taking place in other markets, that means that it will not be feasible for any large democratic government to shutdown Bitcoin without also unraveling other large economic markets that are now meshed with Bitcoin. There may be totalitarian or communistic governments that take a stand against Bitcoin exchanges (see China), but for the most part democratic and capitalist governments and economies are now faced with the reality that Bitcoin is a part of our economy. It will need to be regulated, but it will not be squashed.
These are the biggest risks that I feel bitcoin faces. Since bitcoin's price is simply demand driven, then these are the biggest risk factors against a growing demand. Outside of these, I don't see very many risks (especially in the foreseeable future) that would hinder demand for it. So simply just saying "but demand could go to zero" is not enough. Demand doesn't just go to zero for those holding bitcoin unless there is a market force that would drive that downturn. Demand could stabilize, in which case the current market price would also see a stabilization, but for a significant downturn to occur, there would need to be a systemic risk to Bitcoin itself (as mentioned above) to take place to drive a massive fleeing from the market.
There are absolutely other risks involved with bitcoin. This is not an exhaustive list by any means, but I hope it provides people with a better understanding for some on how to look at what the risks to the Bitcoin market are.