31 October marks a momentous anniversary in the history of cryptocurrencies: a decade since the publication of 'Bitcoin: A Peer-to-Peer Electronic Cash System', the whitepaper penned by a mysterious individual – or group of individuals – under the name Satoshi Nakamoto.
No one could have predicted the far-reaching implications of the document, which first outlined a plan for "an electronic payment system based on cryptographic proof instead of trust". In the years since, bitcoin has grown from an obsession of developers and hackers to a popular instrument invested in by millions around the world. The value of one bitcoin has risen from nothing to $19,500 and fallen back to $5,000. And while its rise over the last 10 years has been meteoric, the next 10 remain far from certain.
The key appeal of bitcoin is that it operates outside the mandate of a central authority like a government or bank. It relies on two mechanisms to function: the blockchain and mining. The blockchain, a shared digital ledger containing a record of all bitcoin transactions, is added to by ‘miners’ who use computer power to run algorithms which generate or ‘mine’ for bitcoins. As bitcoin isn’t controlled by governments or banks, you can make transactions without giving away your IP address – in other words, anonymously. The first bitcoin sale took place in 2010, when a user swapped 10,000 coins for two pizzas.
In the aftermath of the financial crash, when trust in banks and financial institutions plunged, the democratic, decentralised technology underpinning bitcoin gave it cultural cachet. Beyond its utility as an investment opportunity or technology for expediting and anonymising online transactions, it tapped into anti-establishment currents running alongside movements like Occupy. It also gave rise to a new kind of investor. Young, tech-savvy, political – these gung-ho early adopters had more in common with the free-spirited visionaries of the early internet than suited and booted banker types.
Still, with bitcoin surging in value, mainstream finance soon began to take note. Legendary investors like Michael Novogratz and the Winklevoss brothers bet big on crypto, giving further validation. As its popularity grew, trading platforms proliferated, as did new currencies. Ethereum, the second biggest cryptocurrency by market cap behind bitcoin, and ripple, the third biggest, had their own spikes in value. Despite concerns about bitcoin being used to pay for illicit materials on the dark web, its popularity – and value – continued to rise.
By the time bitcoin reached the height of its speculative bubble near the end of 2017, the 10,000 BTC used to buy two pizzas in 2010 would have been worth around $200m. This huge surge completed the transition from niche hobby to dinner table conversation fodder. Many got rich. Others, spurred on by huge returns and a fear of missing out, invested everything and came away with nothing.
If bitcoin is ever to make the transition from volatile quasi-commodity to genuine currency, enhanced regulation is necessary. Well-regulated crypto markets would mean less volatility and could pave the way for acceptance from mainstream banks, most of which currently avoid cryptocurrencies because of concerns over a lack of oversight. Only then could we begin to see the realisation of some of the more utopian visions laid out by crypto’s loudest cheerleaders. Expectations of widespread adoption are currently low, however, after regulators rejected recent proposals to list bitcoin-backed ETFs amid fears of manipulation.
Some say the market is showing signs of maturing as hopes of widespread adoption fade and investors settle in for the long term. It’s true that volatility – and volume of trading – has slowed in recent months. It’s also worth keeping in mind that while the value of bitcoin has fluctuated, experts have steadily found more and more uses for blockchain’s decentralised ledger technology, in sectors as diverse as coffee production, weapons tracking and election voting. So though the value of bitcoin has proved volatile, the appeal of the technology on which it is based has remained constant. Something for the bitcoin believers to cling on to, perhaps, as they venture optimistically into the currency’s second decade.
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