I Was Wrong About Bitcoin. Here is Why.
Several years before, tech enthusiasts in San Francisco started buzzing about a new and mysterious thing named Bitcoin. There were rumors that the digital currency, invented by a pseudonymous math genius named Satoshi Nakamoto, could revolutionize modern finance and render government-backed currency outdated. Or perhaps it was only a passing fad.
I wished to know the phenomenon for myself. In 2013, I purchased one Bitcoin, a clunky and labor-intensive procedure that involved going to a CVS and utilizing MoneyGram to wire the dollar worth of a Bitcoin — which was around $140 at the time — into a cryptocurrency exchange. I sold my Bitcoin a week later for a little loss, completely unimpressed with the experience and pessimistic about the virtual currency’s prospects.
Hoo boy, did I dismiss it. Today, the Bitcoin I sold for about $140 will be worth greater than $15,000, and cryptomania has seized the whole world. As of the week, Bitcoin futures are trading on the Chicago Board Options Exchange, and Coinbase, the most significant consumer trading platform for Bitcoin, temporarily crashed last week because of a huge influx of traffic. And while specialists are warning the exuberance around Bitcoin is a traditional indication of a bubble, few believe it will disappear altogether even in case of a crash.
What is Bitcoin and How Does This Work?
What happened? After a few weeks of thinking about it, I could point to at least five poor assumptions I left.
I presumed that Bitcoin’s future depended on its regular usage.
In the first days of free bitcoins, its proponents envisioned people using cryptocurrencies to buy food, pay their rent and also make other day-to-day purchases. Eager to deliver Bitcoin to the mainstream, they put up Bitcoin ATMs to facilitate easy transfers and encouraged their local restaurants and pubs to begin accepting Bitcoin payments.
Nowadays, however, hardly anybody is spending Bitcoin on actual goods and services. (Why would you, if the value may jump 40 percent in two days, as it did last week?) And few merchants have gone through the trouble of upgrading their systems to take cryptocurrency.
As it happens, while few people wish to use Bitcoin as a money, plenty want to treat it as an investable security, similar to silver or gold, especially while the purchase price keeps rising.
I presumed the blockchain would eclipse Bitcoin itself.
One of the earliest predictions among Bitcoin skeptics and boosters alike was that Bitcoin itself could be just a predecessor technology into the real, lasting invention: the blockchain — the peer-to-peer ledger system which records cryptocurrency trades and allows them to function without a central authority. I agreed, believing that the blockchain had real promise, but that Bitcoin would ultimately fade away.
Four years later, there’s, in actuality, been tremendous hype around blockchain projects. (One British company added the term “blockchain” to its title and saw its shares immediately jump nearly 400 percent.) But that frenzy hasn’t detracted from investor enthusiasm for Bitcoin itself — in fact, it has amplified it. And the potential applicability of blockchain technology to all kinds of different industries, from auto manufacturing to insurance into groceries, has inspired lots of non-techies to learn about cryptocurrencies, also served as an intellectual on-ramp for new Bitcoin investors.
I presumed that authorities would crack down quicker.
At the frontier days of cryptocurrency, it seemed that every other story was about how offenders and tax-evaders were using Bitcoin to purchase and sell illegal products and services. A huge dark-net narcotics market, Silk Road, was broken up, and its owner was sentenced into life in prison. Several large cryptocurrency sites suffered hacks and thefts. It was easy to think that these problems would direct authorities to take speedy action against Bitcoin.