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Kevin Dowd, professor of finance and economics at the Business School of Durham University, believes that Bitcoin will not survive. In a recent article published by CoinDesk, he says that the most popular digital heritage will still bite dust.
He started his article explaining that the Bitcoin mining industry had the industrial structure of a monopoly. This means that it is much more productive and efficient to produce Bitcoin when there is only one company that does it. For this reason, he believes that Bitcoin will not be able to survive long-term.
Dowd says that he first made that prediction when Bitcoin was worth $ 379. In December 2017, Bitcoin reached $ 20,000 and has since fallen to $ 3,200. However, he still believes that Bitcoin will not survive.
As the professor explains, there are two reasons why this could happen. The first thing is the fact that Bitcoin mining is an industry that has created a natural monopoly. This is something that goes against the main decentralization values of Bitcoin. Moreover, if there is a market without regulatory access, inferior products are not able to survive. This is why he says that the price of Bitcoin will reach zero in the long run.
Why Bitcoin is a natural monopoly?
Although Bitcoin mining activities are promoted as something that can be done by every single individual in their homes, the mining industry is characterized by great economies of scale. Due to the fact that these industries are so large, mining activities have become a natural monopoly. This would lead to the collapse of Bitcoin.
Professor Dowd commented on this:
"The implication is that the Bitcoin system is not sustainable, because what can not continue will stop, we must conclude that the bitcoin system will inevitably collapse." The only question is when. "
Dowd explains that the first point of error will be related to the trust that people will have with the dominant company in space. In fact, the market may eventually have confidence in what the dominant company will do with its power.
Furthermore, this company will also threaten anonymity in space. The company will be forced to impose anti-anonymity regulations to combat money laundering and other things.
Is Bitcoin a lower product?
The finance professor is sure that Bitcoin is a lower product and for this he will not be able to survive. If this lower product falls, then its price will be zero in the long run. However, this would happen if there was an absence of regulatory barriers to entry.
According to Dowd, Bitcoin was the first engine and had no entry barriers. As other companies and projects are also able to create their own products, they will eventually replace Bitcoin. As new projects begin to develop their cryptocurrencies, they will learn from the mistakes made by Bitcoin and improve the defects that have the largest digital currency, eventually replacing it.
To support this statement, it uses the data provided by CoinMarketCap in which it demonstrates that the Bitcoin domain has fallen from 2013 until today. In fact, the Bitcoin domain has gone from almost 95% in 2013 to 52% just a few hours ago. Now the market has more than 2,000 digital resources and the number could continue to grow in the future.
"Innovators – the first engines in a market – rarely survive long-term in free entry conditions," he says. "One example is the Ford Model T. This car was first produced in 1908 and soon came to dominate the market, but competitors learned from design flaws and built better cars, which eventually stole its share of market. "
According to a recent research paper published by the Federal Reserve Bank of St. Louis, altcoins influence bitcoin prices on the market. When new virtual currencies enter the space, Bitcoin's market share decreases. Because of investors who place their funds in cryptocurrencies, Bitcoin has lost an important opportunity to continue to grow as in recent years.
At the time of writing this article, Bitcoin is trading around $ 3,584 and has a market capitalization of $ 62.66 billion.
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