When Bitcoin first launched, there was a great deal of interest in the digital currency.Bitcoin investors were all over the news, talking about the virtual pot of gold they saw in Bitcoin, and encouraging everyone else to get on board.It seems that, perhaps not shockingly, this was bad advice.Bitcoin has seen its value collapse over the last few months, and in this article, Australian professor David Glance explains some of the fundamental flaws of the Bitcoin model.– FD Bitcoin’s continuing price fall unmasks its underlying flaws.Is this its end?By David Glance, University of Western Australia Bitcoin was dubbed the worst investment of 2014.As predicted however, 2015 has seen the continued fall in value of the currency that was supposed to fuel the digital age.In the last 10 days alone, it has lost 26% in value.If 2014 was a bad year for the digital currency, 2015 looks like it will be even worse.Barely days into the year, UK-based Bitcoin exchange Bitstamp was “hacked” and 19,000 Bitcoin stolen.

At the time, this loss was valued at US $5 million.Bitstamp has since come back online, with revamped security from BitGo.It may however, all be a bit too late.Hacks of Bitcoin exchanges have come to characterise the Bitcoin world.It isn’t something that is necessarily inherent in Bitcoin itself, but more of a feature of the types of companies that have sprung up around the troubled technology.At best, the hack of one-time leading Bitcoin exchange Mt Gox, was a result of sloppy coding and business practices.At worst, it was an inside job, defrauding its customers of $487 million.A more ominous problem has cast its shadow on the future of Bitcoin.Bitcoin relies on people to engage in “mining” to validate every exchange of the virtual currency.Miners, do some agreed calculations, and if they are fast, or lucky, enough, will succeed in winning some newly produced Bitcoin in exchange for adding the transaction onto the Bitcoin ledger called the Blockchain.The strategy of mining has become Bitcoin’s achilles’ heel.

The design of Bitcoin dictates that the difficulty of mining will increase as more Bitcoins are produced and more miners get involved.bitcoin dragons denThis has led to mining being dominated by companies that can scale to the point where they can guarantee to earn a certain percentage of Bitcoins created each day.fake bitcoin pillsAs Bitcoin’s value has dropped, the economics of the mining operation have changed, to the point that mining ceases to be economically viable.bitcoin wallet liteCloud mining company CEX.io suspended their mining operations this week, declaring that it needed the price of Bitcoin to be at least $320 before it would be able to resume its operations.litecoin boxUnfortunately for them, the price has dropped even further since and the likelihood of it climbing back to $320 seems slim.bitcoin ventures llc

Another mining company, CoinTerra, is being sued by a data centre provider for $5.4 million for unpaid fees.bitcoin losing momentumThe cost of power alone to run CoinTerra’s services was $12,000 a day.The underlying protocol of Bitcoin does allow for the relative difficulty of mining to be eased if it becomes to hard for miners to stay in operation.In fact, this happened last month for the first time since 2012.It could theoretically continue to become easier as the Bitcoin price drops.The issue is however, that this wasn’t supposed to happen.Bitcoin’s price was supposed to keep increasing as more Bitcoins came onto the market.Bitcoins value relies purely on the belief of the people who buy and sell it.There is no central bank or government around to support it in the case of its value crashing to zero.Once that belief is questioned, Bitcoin becomes unsustainable.Even if the price of Bitcoin doesn’t go to zero, the chances the Bitcoin community convincing the wider public, governments, and industry that Bitcoin really represents the future of the world’s digital economy will become extremely unlikely.

For the time being, Bitcoin still has enough devotees who believe that the currency will eventually recover and still claim the crown as the future enabler of all digital commerce.However, even they are having their doubts that this grand technological experiment may have run its course.This article was originally published on The Conversation.Read the original article.Given the peaks and troughs of the Bitcoin world, it’s tough to stay optimistic about making money with mining.But is it possible to look into the crystal ball of hash rates, changing equipment and ASIC technology to see the future of mining profitability?The world of Bitcoin mining is a tumultuous place of late and depending who you ask the mining ‘game’ is either doomed or remains a safe bet.What’s certain is that the climate is very different to that of the period of ‘free money’ that existed two years back.Long gone are the days of mining at home and graphics card based setups have given way to Application-Specific Integrated Circuits or ASIC’s, even cloud-mining services are feeling difficulties of late, with CEX.io pausing its cloud mining service back in January.

The mining hash rate had previously been growing rapidly as it ‘caught up’ with the Bitcoin price.The result of this was mining becoming a highly profitable and attractive investment, which lead many to invest in mining-focussed machines.The hash rate continued to grow notably throughout 2014, but with the rate of growth dropping off.2015 has seen this trend towards a plateau continue, with the hash rate floating fairly consistently around the 350,000,000 GH/s rate.Bitcoin mining, due to lower exchange prices and a more developed network, now requires incredibly efficient, powerful equipment just to be profitable; Gone are the days of mining from home with GPU’s.Further developments in ASIC technology is likely the only beacon of light that has the potential to bring about increases in hash rate and a return to profitability without notable price surges.Further stagnated growth would likely see more significant changes to the mining landscape, with mining equipment manufacturers limiting or even ceasing retail of units and instead focussing efforts on their own equipment to increase capabilities across their mining facilities.

We are yet to see any significant increase in hash rate this year, despite promised improvements in energy efficiency; this could be due in part to mining companies taking their time to replace older equipment with the most state of the art ASIC solutions.It appears that some leading mining organisations are yet to replace their equipment, this can seen by the fact that some notable companies’ share of the total hash rate has increased whilst others have decreased.This leads many to anticipate a boost in hash rate as further large mining organisations bring next generation equipment online.The future of Bitcoin mining profitability Blocktrail’s “Pool Distribution” shows quite clearly that Bitfury has grown significantly over the last 6 months, as has AntPool’s capacity.This is a likely indication that these two mining organisations have been introducing new equipment.Many estimate that the total hash rate is set to rise again as new equipment is deployed across the board and new ASIC developments are initiated, with some believing the total network hash rate could reach over 700,000,000 GH/s.

Electricity costs will continue to be an important factor for miners to consider, but due to the nature of the mining landscape nowadays this is essentially just an operating cost factored into a sizeable business.It is important to remember that development is continuous in the field of ASIC technology and the most exciting new systems can take a long time to go from design to production and even longer before they can takeover as the main systems in large mining facilities.Despite all these concerns, many are still optimistic for a future of profitable mining with Bitcoin; Max Keiser’s Bitcoin Capital Fund on the BanktotheFuture platform is offering a way for less technically minded investors to speculate on Bitcoin and they say a significant amount of the investment funds are destined to go towards mining.Ultimately there are a great deal of different factors that will decide the future of Bitcoin mining and its profitability.If innovation can continue with the development of ASIC technology and extremely efficient systems for powering the hardware, then perhaps we will see notable increases in total network hash rate soon, but as is often the case with Bitcoin nobody can know for sure!