In less than a decade, bitcoin has gone from being an obscure curiosity to a household name. Its value has risen — with ups and downs — from almost nothing to $16,000 at the time of writing.
Bitcoin’s rise is spectacular. Its price is up almost thirtyfold in the past two years. Currently, the value of Bitcoin in circulation is more than US$170 billion, greater than the market capitalization of McDonald’s. This is remarkable because unlike McDonald’s, which has stores in almost every corner of the world, Bitcoin as a virtual currency is hardly even transacted in the real world.
The rise in Bitcoin’s value reflects speculation about its future value: This digital currency will have long-term value as long as it is accepted as a medium of exchange and a store of value.
The greater its acceptance, the more it will be worth. However, it is difficult for Bitcoin to be accepted as real money. Therefore, the high volatility of its value largely reflects changes in the perceived degree of acceptance.
By design, there are inherent weaknesses that prevent Bitcoin from becoming real money.