Bitcoin’s (BTC) second decade is beginning the way its first ended, with fierce debate. This time it’s after an attack from an official that shows how far the world’s first decentralized currency has come and how far it still has to go for broad acceptance.
“I will just say outright I am not a fan,” former U.S. Federal Reserve Chair Janet Yellen said during a conference Tuesday. Bitcoin, she added, is “not used for a lot of transactions, it’s not a stable source of value and it’s also not an efficient means for processing payments.” The speech sparked fierce backlash on Twitter among bitcoin’s zealous supporters.
The debate over what bitcoin is exactly has been raging since “Satoshi Nakamoto” issued the white paper “Bitcoin: A Peer-to-Peer Electronic Cash System” on Oct. 31, 2008.
Bitcoin isn’t the new world reserve currency yet. But here Are 10 Things It Has Become.
“Bitcoin’s origin is akin to planting a tree,” InterchangeHQ founder Dan Held wrote in a recent blog post. “It had to grow to be strong, mighty and huge. It had to survive droughts, storms and predators. Its deep roots had to support the weight of becoming a new world reserve currency.”
An Intellectual Experiment
Satoshi’s white paper brought together thinkers, rogue developers, cypherpunks, libertarians, university researchers, cryptographers, goldbugs, developers, maximalists and, eventually, traditional financial and business players.
Under this big bitcoin tent, some of the folks along the edges have been more of joke while others have been outright frauds. Critics jumped in, notably Warren Buffett, Bill Gates and New York University professor Nouriel Roubini, who called bitcoin and other cryptocurrencies the “mother and father of all scams” at a recent Congressional hearing.
Bitcoin’s supporters love it because, to them, the chaos is part of the charm.
A Disruptive Force
Back in October 2008, the global economy was faltering because of the financial crisis brought on by banks that had over-extended themselves into risky investments, resulting in a severe cutback in credit issuance. The idea of decentralized, borderless and (somewhat) private financial transactions took root in this fertile soil.
“The quest to be decentralized can be tied to a financial crisis, but if we didn’t have bitcoin it’s likely something else to challenge centralized payment systems would have emerged,” Sarit Markovich, clinical associate professor of strategy at the Kellogg School of Management at Northwestern University, told Marketwatch in September.
An Economic Experiment
There’s a reason the majority of cryptocurrency white papers have included a lengthy discussion of economic principles. That’s because bitcoin and all the other blockchain-based ecosystems that have followed are based on principles of consensus, game theory and incentivizing users’ behaviors through token-based economies.
But these approaches all reference the first currency that “can pay people to keep it alive… [and] perform a useful service that people will pay it to perform,” as cryptographer Ralph Merkle once put it.
A Shifter in the Global Center of Gravity
Both in terms of its developers and real-world adoption, bitcoin and the blockchain ecosystem it spawned have shifted the center of gravity from North America to Europe, China and Russia.
At the same time, the energy-intensive process of mining has shifted massive computing operations such places as Iceland and Canada, where lower temperatures and more abundant hydroelectric energy offer better returns. Crypto’s center of gravity may shift yet again to other areas of the developing world such as southern Africa.
A Source of Winners and Losers
Bitcoin as a currency didn’t launch until Jan. 3, 2009. Early on, a single bitcoin was worth less than a penny. Compare that with December when its price nearly touched $20,000. Massive price increases led to a gold rush in bitcoin and the other cryptocurrencies often released through initial coin offerings. By one count, there are now more than 2,000 cryptocurrencies, while another 1,000 or so have failed.
Some early investors have made millions of dollars through trading bitcoin and other cryptocurrencies, but others lost big or became victims of fraud. Bitcoin’s escalating price drew in a mass influx of inexperienced investors worldwide, producing alarm and increased scrutiny by securities regulators.
“Retail investors, students, housewives, even grandma was driven in by the hype,” Michel Rauchs, who researches cryptocurrency and blockchain at the Cambridge Centre for Alternative Finance, told CNN. “They were told by the media that this was an opportunity of a lifetime. They bought at the top and are now sitting on heavy losses.”
A Meme Factory
For those who made it, the luxury Lamborghini became the symbol of bitcoin success. New words entered the lexidon: HODL (hold on for dear life) and REKT (wrecked), shorthand for investment stances.
A Regulatory Spur
As you might expect, government officials and regulators had some catching up to do after their initial skepticism about bitcoin and other cryptocurrencies. Beyond the rhetoric, real efforts are underway to create regulatory frameworks for cryptocurrencies and their businesses in the United States and abroad. Other nations and territories are actively promoting crypto-friendly laws to attract new businesses. Several nations are even working to create state-backed cryptocurrencies.
A Continuing Mystery
Ever since announcing in 2011 that he had “moved on to other things,” Satoshi’s true identity has been a source of speculation. But a decade after his white paper, we’re no closer to knowing for sure who created bitcoin or why.
Civic cofounder Vinny Lingham said knowing Satoshi’s identity is less important than “showing respect for Satoshi’s decision to leave. That was his choice, but what happens next is ours.”
A Boon to Mainstream Business
Bitcoin’s underlying blockchain protocol has become big business in its own right. Even companies that want no part of bitcoin for now are getting into blockchain. IBM is working with Maersk and Walmart on blockchain technology to monitor the supply chain. Microsoft is working with Nasdaq on a blockchain to make trading easier for stock traders and clearinghouses. Blockchain could even become the killer app for managing the Internet of Things (IoT) across industries.
A Paradigm Shift
Chances are most people don’t know what TCP/IP is. But in the early 1990s this networking protocol, used by few outside of research labs following its invention the previous decade, was the incredibly durable foundation on which the entire commercial internet was built.
For backers of decentralized systems, the parallels are obvious. For every Cryptokitties transaction that takes 10 minutes or more to be confirmed today, there was a pixelated video cat or dog that took just as long to download in the internet’s early days.
“We’re at the equivalent of 1992 for the Internet,” XAPO founder and CEO Wences Casares told Bloomberg. “All you needed to know back then was that there was a protocol for moving information from one, anywhere to anywhere in real time…for free. It didn’t take much imagination to say that may change information forever.”