For almost ten years, Bitcoin has survived many tragedies and withstood a wide range of negative factors that would have otherwise made it extinct. Since its subtle entrance in 2009, it has been besieged with bad reviews, derogatory remarks, and death sentences. But despite all of the negativity that Bitcoin has had to deal with, nine years later, it has grown to be the most valuable cryptocurrency in the world.
Bitcoin, a digital currency distributed electronically, was introduced by the anonymous Satoshi Nakamoto in 2009, with the first version created that year. In October 2008, a whitepaper was published through a cryptography mailing list known as metzdowd.com, that described the Bitcoin currency which also solved the problem of doubled spending. Since then till date, it has continued to wax stronger and better.
The death and continuous resurrection of the Bitcoin is something that Bitcoin is used to. Critics do not waste time in slamming the currency and giving the I-told-you tale, when it looks like Bitcoin has hit an all-time low, with little or no hope of coming back on its feet. Regardless of how people feel about the Bitcoin, no matter how many death sentences are pronounced and obituaries printed, it will continue to thrive.
A Little Bit of History
Prior to when Bitcoin came into existence, there were other digital currencies in existence; among them was DigiCash, created by the famous American cryptographer, David Chaum in Amsterdam, 1990. He invented many of the first cryptographic protocols that digital currencies would come to be based on. David Chaum had been investigating what it would take to create electronic cash. His views on privacy led him to believe that a token money imitating paper money and coins but having privacy features, would be ideal for safe commerce. According to him, transactions can take place between two people effortlessly and privately. Later on, DigiCash was born. The company boomed until it faced bankruptcy in 1998. Microsoft offered to give the company $180 million which was rejected by the company. When the deal fell through, and the company was later sold. Others include PayPal, BitGold (which never fully developed), WebMoney (1998), Liberty Reserve (created in 2006 and shut down in 2013 due to criminal activities), E-gold (a successful digital gold currency launched in 1996, later sunk in 2009), among others.
In 2007, there were reports that a Satoshi Nakamoto was working on creating a digital currency. On August 15, 2008, an application for an encryption patent application was filed by Neal Kin, Vladimir Oksman, and Charles Bry. When there were speculations that they were the mysterious Satoshi Nakamoto, all three denied a connection to the Bitcoin creator. Later in 2008, the domain, Bitoin.org was born and registered at anonymousspeech.com, a site that enables users to register domain names and accept bitcoins. In November 2008, the currency was registered on SourceForge.net, which is a community collaboration website that focuses on the development and distribution of open source software. By January 2009, the Genesis block was mined. In January also, version 0.1 of Bitcoin was released. Still, in January 2009, the first bitcoin transaction took place between Satoshi Nakamoto and Hal Finney, a developer and cryptographer, making Hal Finney the first person to ever receive a Bitcoin transaction.
When Bitcoin was introduced, skeptics did not welcome the idea, as they had seen many digital currencies in the past fail. Many thought Bitcoin would suffer the fate. Being the first decentralized digital currency, it has so far stood the test the time.
The Many Bitcoin Critics in the Mainstream Business Scene
Bitcoin at its core represents a system that has the potential to challenge the centralized status quo. Unsurprisingly, it has been treated as anathema by the majority of the mainstream Business class. Words like “bubble”, “fad”, “worthless”, and sundry other unflattering terms have been used to characterize the pioneer cryptocurrency.
In September 2017, Jamie Dimon, the CEO of J.P. Morgan Chase pointedly called bitcoin “a fraud.” He drew a lot of flak over his comments and attempted to provide some context for them. He declared his appreciation for blockchain and distributed ledger technology, calling them useful innovations with real-world applications. He, however, likened bitcoin to the tulipmania of the 17th-century Dutch Empire. During the tulipmania, the price of tulips rose to unprecedented heights before crashing spectacularly in February 1637.
The tulip bubble isn’t the only bubble that bitcoin has been compared to. Some business moguls have also likened it to the dot-com bubble of the late 90s and early 2000s. These analysts and experts draw comparisons between the irrational investment exuberance that seems to be common to both eras. For these business experts, the hype that surrounds the market will only lead to the inevitable demise of bitcoin once the tipping point is reached, culminating in a severe crash in bitcoin prices.
Warren Buffet, another titan of the business world is a staunch critic of bitcoin and has remained unwavering in his dislike of the cryptocurrency market. As early as 2014, the Berkshire Hathaway chief called bitcoin a mirage. Three years on, he doubled down on his criticism of bitcoin, saying that it will eventually come to a bad end. Much of Buffet’s dislike of bitcoin is based on his argument that it cannot be valued and as such, has no intrinsic value of its own.
The price volatility and the anonymity of bitcoin transaction, coupled with the unregulated nature of the market have made many Wall Street giants shy away from it. However, in recent times, the tides seem to be shifting gradually with some Wall Street beginning to take tentative steps into the bitcoin market.
Government Perception of Bitcoin
If the mainstream business scene is the biggest critic of the bitcoin market, governments around the world have been the biggest opposition to the growth of bitcoin. According to Bitcoin Bans, an online service that tracks the number of times bitcoin has been banned by government agencies around the world, bitcoin has been banned 23 times. Countries that banned bitcoin in one way or the other include China, Colombia, and Ecuador.
Even in countries where bitcoin hasn’t been expressly banned, there have been attempts to tightly regulate the market. The genesis of government attention on the bitcoin market can be traced back to the days of Silk Road and AlphaBay. These were dark web platforms where bitcoin could be used to purchase illegal and illicit items. After a government crackdown on these and other similar platforms, governments began to enact strict laws concerning bitcoin
The fear of many governments is the potential to use bitcoin for money laundering and terrorist funding (ML/TF). This based on the anonymous nature of bitcoin transactions, which makes it difficult to ascertain the ownership of funds. Silk Road and AlphaBay was a clear example for many governments of the potential security threats posed by an unregulated bitcoin market.
In the United States, the EU, Russia, and several Asian countries, there have been concerted efforts to introduce legislation that can prevent the use of bitcoin for ML/TF. Many countries have enacted laws that prescribe strict know-your-customer (KYC) and anti-money laundering (AML) rules for bitcoin and other cryptocurrency trading operations. The purpose of these laws is to eliminate anonymous trading activities.
Rise, Fall, and Repeat
The price volatility of bitcoin has meant that the cryptocurrency has gone through many boom-bust cycles since its inception in 2009. According to Charles Kindleberger’s explanation of Hyman Minsky’s bubble model, there are five distinct stages in any bubble economy: displacement, boom, euphoria, financial distress, and revulsion. The emergence of bitcoin caused some level of displacement within the global payment systems. The same kind of displacement can be attributed to other pioneering technological breakthroughs like the internet, telephone, and railway.
In a matter of years, the price of bitcoin began to climb as more people bought into the idea. All of this led to the boom and euphoria that characterized the latter part of 2017. The price of bitcoin rose from just under $1,000 to almost eclipsing the $20,000 milestone. The euphoria didn’t last long though as negative reports out of South Korea caused doubt and panic to set in. The market soon experienced a large market selloff as was plunged into financial distress. The price of bitcoin fell to below $6,000 in a matter of weeks, signaling a crisis. However, the price of bitcoin has started climbing again with bitcoin currently trading at $8,150.
In the midst of bitcoin’s journey from 2009 to the present day, there have been a few crashes and upsurge in price. Just when the naysayers sound the death knell for bitcoin, it bounces back again. Events like the Mt. Gox hack, the Silk Road busts and several regulatory crackdowns haven’t been able to completely extinguish the bitcoin flame. Presently, bitcoin appears to be treading water, trying to stabilize and rise again. The next few months could hold the key to whether the naysayers were right or if bitcoin truly is “immortal.”