State of the Blockchain: How did bitcoin prices reach $7,500?

Illustration by Tech in Asia’s Andre Gunawan.

This is State of the Blockchain, where we focus on the most noteworthy news you need to know in the blockchain scene over the past week. Without further ado, here’s our hit list for the week.

Bitcoin hits US$7,500

The price of a bitcoin has exploded to a new all-time high of US$7,500, recording a mind-boggling 60 percent gain over the past month. It’s difficult to pinpoint what exactly led to this tremendous growth, but it is believed that two developmental factors are at play:

Reason 1: Segwit2x hard fork

The bitcoin blockchain will undergo yet another hard fork this month to introduce a new governing protocol named Segwit2x (B2X). The fork was proposed to increase the transaction speed and scalability of a new bitcoin blockchain by doubling the block size of the old one from 1MB to 2MB.

The different parties involved—the miners, bitcoin-related companies, developers, and node operators—have differing sentiments toward the new protocol. At this time, it’s uncertain if B2X will replace the legacy bitcoin chain or cause a chain split. It all depends on the miners and which protocol they perceive to have the highest profitability.

If the chain does split, bitcoin holders will receive a proportionate amount of Segwit2x tokens for free. The probable reason why investors are buying bitcoin right now is the perceived value of this new token. The value of B2X is estimated at more than US$1,600 now, significantly higher compared to Bitcoin Cash (about US$660) and Bitcoin Gold (about US$130).

Why does it matter?

The cryptocurrency community is rife with speculation and debate. Most developers and node operators are skeptical about the effectiveness of Segwit2x to solve the bitcoin scalability problem, the safety and security of the hard fork, and how Segwit2x might affect the price of bitcoin in the future.

Bitcoin has gone through a couple of hard forks recently because of differing ideologies on what its function should be. Ever since bitcoin’s pseudonymous founder, Satoshi Nakamoto, vanished in 2010, no single authority can direct its future. The decentralized nature of bitcoin’s decision-making process is creating a political deadlock—developers, miners, businesses, and operators are in a tug of war, opposing any decisions that are not beneficial or profitable for themselves.

For retail investors and users, it can be overwhelming and confusing to understand the different hard forks and why they exist. Could this be teething pains for a maturing technology that is struggling to cope with the pressures of mainstream adoption?

Reason 2: CME Group announced the launch of bitcoin futures product

The world’s largest options and futures exchange, CME Group, announced the launch of a new bitcoin futures product. The explosive growth of bitcoin has attracted the attention of Wall Street firms, but its volatility and decentralized nature have drawn significant criticism, making it more difficult for banks and other financial institutions to recognize it as a financial instrument.

Why does it matter?

Great reads this week