“Bitcoin’s defects will hasten its demise in 2015. The leading crypto-currency’s economies of scale in mining and its transaction system’s vulnerability to subversion by a dominant miner make it unsound. As seignorage declines it will become cost-uncompetitive for transactions. These flaws will cause its price to lose further altitude.
The digital currency is controlled not by a state but by an underlying algorithm by which participants can “mine” bitcoins through solving mathematical problems. The universe of miners can then validate “blockchains” of bitcoin transactions by majority vote, weighted by their mining effort. As a reward, miners receive more bitcoins, distributed randomly.
By combining their activities, the currency’s creators can increase their probability of receiving a bitcoin, which can be shared between them. Assuming miners are risk-averse, the system slants toward monopoly. This theoretical tendency is validated by the current bitcoin setup, in which a single mine, GHash.IO, which pools the interests of individual participants, currently controls about 39 percent of mining activity, according to Blockchain.com.”
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