Bitcoin was meant to revolutionise the financial ecosystem but scandals, missteps, and wild price spikes have marked the first decade of the cryptocurrency.

In February this year, Bitcoin tumbled below US$50,000 – as low as US$45,041 – making it worth less than US$900 billion right after hitting the US$1 trillion market value milestone for the first time.

Just before that though, huge jumps in the market pushed Bitcoin (yet once again) into the spotlight.

There were sensational developments that stirred the hype on – like Elon Musk’s Tesla Inc buying a substantial amount (US$1.5 billion) of Bitcoin.

Microstrategy Inc adjusted its convertible debt sale to purchase Bitcoin by nearly half to US$900 million.

One of the biggest trends has been the moving of institutional balance sheets into Bitcoin in order to hedge against inflation.

Other strange and headline-worthy stories helped keep Bitcoin in the limelight, including when J P Morgan Chase sent blockchain payments into space.

This begs the question; just what is going on and should you get in on the action? Perhaps a good point to begin would be to look at the current state of cryptocurrency as a concept.

Cryptocurrency as a concept

The rise and subsequent retreat of the price of Bitcoin, as well as the rush of new cryptocurrencies to the market, have been the focus of recent headlines.

Naturally, investors not already in the Bitcoin market are curious whether they should get in now or if they have missed the ride.

And business owners wonder whether they can establish a way to be paid in cryptocurrency while also trying their best to handle the risk management that comes with it.

The opportunities that cryptocurrencies generate for illicit activities, such as money laundering and terrorism, are also noted by many of the warnings issued by different countries.

Australia, Canada, and the Isle of Man, for example, have recently introduced legislation to introduce transactions of cryptocurrencies and organisations that promote them under the laws of money laundering and counter-terrorist financing.

Many jurisdictions have gone even further and placed limits on investments in cryptocurrencies, the scope of which varies between jurisdictions.

Some (Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam) forbid any crypto-currency operations, in that they prohibit their citizens from participating in any kind of activities involving cryptocurrencies locally.

Qatar and Bahrain have a somewhat different approach, as they encourage citizens to do so outside their borders.

Some countries place indirect limitations by restricting financial institutions within their borders from facilitating transactions involving cryptocurrencies, while not stopping their citizens from investing in it (Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia).

Evaluating Bitcoin’s next decade

At present, the cryptocurrency is placed between being a store of value and a regular transaction medium.

Institutional investors, even as governments around the world, such as Japan, have proclaimed it a legitimate means of payment for commodities, are willing to take action and benefit from fluctuations in their costs.

Without technical changes in its environment, the mainstreaming of Bitcoin as a payment mechanism will not happen.

Bitcoin’s blockchain should be able to manage millions of transactions in a short period to be considered a legitimate investment asset or form of payment.

Ripple’s CTO David Schwartz compares Bitcoin to Ford’s Model T, along with advancements in Bitcoin’s blockchain.

The carmaker heralded a transportation revolution, and an entire ecosystem developed to support the automobile, from highways to gas stations.

The beginnings of an ecosystem for Bitcoin have already taken root. The environment will likely grow as regulations develop to keep pace.

Benefits

Cryptocurrency transactions require no intermediary by using the decentralised blockchain technology, which can make transactions cheaper and ensures that no entity can cancel or interfere with a transaction.

For example, an individual who wants to transfer money internationally will usually need an intermediary to convert the currency from one to the other, charging fees for the conversion as well as for the transaction. There may also be delays.

However, the transaction will take a few minutes at most with a crypto-currency such as Bitcoin, with a single transaction fee. It can also be started using an internet connection from anywhere in the world.

This may present the prospect of inexpensive, almost instantaneous transactions for companies that can seamlessly cross borders, which could revolutionise the global payments and remittances industry, while also helping those who are more technologically inclined with personal money management.

Blockchain is still anonymous and has never been compromised since the distributed ledger ensures that on any device in the chain, evidence of every transaction is replicated.

There will still be documents showing the right transaction information if even a handful of these has been compromised.

Risks

Firstly, there is a drawback to the decentralised existence of cryptocurrencies as the absence of government backing implies no government security. This may mean that in the case of a burglary, the government has no motivation to track down the perpetrator.

There have also been cases of cryptocurrency buying and selling exchange fraud. According to Reuters, hackers stole about US$530 million worth of cryptocurrencies from the Coincheck exchange in Japan in January.

The prospect of government intervention is another risk that may have led to the recent fall in the value of Bitcoin.

Although countries will probably not be able to shut down a cryptocurrency entirely, they might make trading illegal.

In January, fears that China and South Korea will do exactly that surfaced, spurring a Bitcoin sell-off. If policymakers try to track down taxable currency flows and possibly illegal activity, other levels of control may be needed.

For many, the recent drop in prices of some cryptocurrencies, with Bitcoin losing more than half its value since December, makes them more convincing than investments.

However, it’s hard at this stage to get a grasp on the potential value inherent in the blockchain protocols in terms of long-term potential upside, which makes choosing winners a challenge.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.