Bitcoin was on a wild roller-coaster ride for much of 2013.
The digital currency has been trading in the triple digit territory for weeks, but there is no shortage of optimists who believe it will soon go north of $1,000 – and then some.
Chris Dixon, a Silicon Valley venture capitalist and Andreessen Horowitz partner, believes a single bitcoin might even be worth $100,000. However, for that to happen bitcoin adoption would have to go through the roof.
Dixon believes the $100,000 mark could be reached if bitcoin becomes the primary means of making online transactions.
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Of course, this will not happen anytime soon, as the bitcoin economy is still underdeveloped and relatively small – tiny when compared to most national economies.
Dixon also compares bitcoins to internet domain names. In the early nineties internet domains were practically worthless and nobody expected some of them would be worth millions just a decade later. This is not the first time this controversial analogy has been summoned.
“It would have been absurd to say in 1993 that domain names were worth $10m each,” Dixon told Wired magazine.
The scarce resource argument
Dixon points out that many start-ups supported by Andreessen Horowitz often pay hundreds of thousands of dollars for domain names that include “average” words.
In hindsight, the best investment you could have made in tech was not Google or Amazon, but internet domains in 1993, Dixon argues.
Critics argue that the analogy does not work in the real world, as the vast majority of domains are still worthless and the supply of domain names is not capped like bitcoin. Only flashy domains with great names can rake in millions, but all bitcoins are essentially the same.
Regulation issues
For everything to line up perfectly, bitcoin would need to gain plenty of traction among businesses, and governments would have to find a way of living with bitcoin transactions. The latter might not be quite so easy to overcome.
Although some libertarians are in favour of bitcoin, the vast majority of regulators and lawmakers are not. Dixon argues that every large-scale technology movement has a political component.
In other words, if the business community wants bitcoin to thrive, if consumers want to use it, politicians will simply have to find a way of reconciling their concerns with demands made by their constituency. More importantly, they will have to reconcile their interests with the interests of their backers in the business community.
Andreessen Horowitz is not new to bitcoin. Last December it raised $25m in funding for Coinbase, the biggest funding deal in bitcoin’s history.
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