Editors' Pick: Originally Published Thursday, Dec. 17.
The understanding of bitcoin on a non-technical level is spreading quickly; however, without technical understanding, many aspects are hard to grasp and even harder to evaluate. Adrian Przelozny is a technologist and software architect who is CEO of Independent Reserve, a bitcoin market. Few individuals understand the in and outs of both the technology and the industry as well as Przelozny. Here follow his views on the industry, bitcoin's current state and its future.
TheStreet: Why are you interested in bitcoin and blockchain technology?
Adrian Przelozny: Coming from a technical background, I first became interested in bitcoin and blockchain technology because it elegantly combined a set of existing computer science concepts such as cryptography and peer-to-peer networking in a way that has never been done before.
It was only after satisfying my technical curiosity that I realized the full power and potential of this technology and that it represents a paradigm shift in the way we and future generations will look at money. The ability for anyone to transfer value instantly and freely across borders is a revolutionary concept that will not only put more power back into the hands of ordinary people but also spawn new industries and applications that have never been possible before.
TheStreet: What is your view on the regulatory landscape of these technologies?
Adrian Przelozny: Regulatory bodies in different jurisdictions have taken different views, but predominantly regulators are taking their time to learn about and come to terms with the new technology. The bitcoin economy is still quite small but growing quickly, and I think that it is inevitable that some regulatory oversight will eventually be put in place. I think that there is a clear need for a level of regulation to be applied to companies that provide custodial services for bitcoin and digital currency. Any company that holds bitcoin on behalf of its clients is essentially acting as a bank, and it is important that these companies behave in a responsible and ethical manner, which has not always been the case in the past. I think that as the bitcoin economy matures and regulators gain a greater degree of comfort and understanding, we will begin to see more consistent rules being applied around the world. The challenge for regulators will, of course, be to provide the right level of oversight to protect consumers, without stifling innovation in a young and very dynamic industry.
TheStreet: Are you invested/would you consider investing in bitcoin?
Adrian Przelozny: Bitcoin is like a high-risk investment. It is volatile, has a small market cap and its price can swing based on the sentiment expressed in an internet chat room. It is important to understand this before considering an investment in bitcoin.
An investor should also be aware that bitcoin faces some longer-term challenges, such as low mainstream adoption, increased pressure from banks and regulators, unforeseen problems with the technology or being surpassed by another digital currency.
Having said that, there is no denying that bitcoin has massive long-term potential as a low friction payment mechanism, and as we begin to see greater mainstream adoption, this is likely to have a positive impact on the price. It is also important to keep in mind that scarcity is built into the very fiber of bitcoin, and as we see the supply of new bitcoin dry up over the coming years, I would expect the price to react positively, assuming that bitcoin can overcome the various challenges it is faced with.
Any investor wishing to gain exposure to the digital currency sector should consider including Bitcoin inside a balanced investment portfolio, but as with any investment this should be done with a solid appreciation of the risk and its impact on the portfolio as a whole.
TheStreet: What is your opinion on the price of bitcoin in a longer time-frame?
Adrian Przelozny: The day-to-day price fluctuations of bitcoin are almost impossible to predict. However, there are various market forces that are likely to shape the longer-term price trends.
An important event in the history of bitcoin is looming. In around nine months, the supply of new bitcoin into the economy will halve, from 25 new bitcoin being created every 10 minutes, to 12.5 bitcoin. This is in line with the algorithm that governs bitcoin and ensures an ever diminishing supply over time. All else being equal, this will likely have a positive impact on price as demand would outstrip supply at current prices.
As we take our crystal ball and look further into the future, price predictions become more speculative, but the price will essentially reflect the overall success and mainstream adoption level of bitcoin. If bitcoin survives its challenges and continues to grow then it is likely to reach a tipping point where adoption happens very quickly, and this may see the price skyrocket, but there are of course many things that could happen between now and then and this outcome is by no means guaranteed.
TheStreet: What are you negative about regarding this industry?
Adrian Przelozny: Ironically, one of bitcoins great strengths -- its decentralized nature -- is also one of its weaknesses. Because any single entity does not control bitcoin, it has often struggled to find a consistent voice along with consensus around its future direction.
This has sometimes resulted in contradictory and confusing messages being sent to the public along with some bickering and unproductive arguments inside the core bitcoin community. This situation can largely be attributed to growing pains in the bitcoin ecosystem and it is my hope that the community can become stronger and more unified as bitcoin matures.
TheStreet: What are you positive about regarding this industry?
Adrian Przelozny: The amount of innovation and open sharing in the industry is amazing. There are thousands of people right now building new products and solutions on top of bitcoin and often releasing these freely on the internet for others to use and improve upon. This bodes well for the future of digital currency as we explore new uses for bitcoin and blockchain technology.
TheStreet: Would you like to add anything?
Adrian Przelozny: Bitcoin represents one of the greatest innovations since the invention of the Internet. It has the potential to transform the way we view and consume financial services, along with being a force for freedom in many areas of the world where people currently face restrictions. I am excited to be a part of this industry and I am looking forward to seeing first-hand how it develops.