Today, October 31st, marks the 10-year anniversary of Bitcoin, the world’s first decentralized digital currency without ties to any state or body. Bitcoin marked the birth of a new era of digital finance, and since its release, the technology has proliferated to all industries from aviation to education to logistics in the form of distributed ledgers.
Why was bitcoin created in the first place?
On 31 October 2008, a link to a paper authored by Satoshi Nakamoto titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ was posted to a cryptography mailing list. The whitepaper itself detailed a peer-to-peer network of electronic transactions without needing to rely on a third party. The elimination of third parties to facilitate transactions is a core feature of the technology, though this feature is seldom seen in other variations of the digital currency. Many new coins are decentralized in name only, and may often feature a core leader who is integral to the project, a pre-mine of tokens, an expensive ICO, or some other aspect of centralized systems.
On the bitcoin genesis block, the text was inscribed – “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. This alludes to an article published in The Times on January 3rd, 2009 (the same date that the bitcoin network went live). The text is both a timestamp of the genesis date and also an obvious signal that bitcoin was intended as a replacement for the fractional reserve banking system, which led to the global meltdown in 2008. Ironically, Mastercard just filed a patent on October 25th for a method of putting fractional reserve banking on the blockchain, completely undermining the purpose of DLT.
Has the digital currency been a success?
By all objective standards, Bitcoin has been a massive success. It is strange to hear people question if the digital currency will ever make it, despite being the best performing asset class of modern times. It went from nothing (literally) to a present price of around USD 6,500.
But the price of the asset is secondary to its ability to allow citizens to trade freely without interference from third parties such as governments, banks, and other institutions. Many people are still either unbanked or at a severe disadvantage from the current banking system, and bitcoin has provided a means of finance where none was previously available.
Bitcoin is being used as a form of crypto charity, where all transactions are transparent and cheap. The charity sector has been beset with scandals, and money spent on accounting and regulatory procedures often eat into the funds that should go to third world citizens. With the introduction of DLT to this sector, many of the traditional problems have been eliminated, and funds can get where they need to be without delay and in the full proportions. Coins 4 Clothes is the world’s first charity that only accepts crypto donations. With few administrative burdens, nearly 100% of the crypto funds go to the recipients.
The technical benefits of being able to send currency anywhere in the world, nearly for free, and nearly instantaneously, cannot be understated. Many bank accounts in the USA charge heavy cross-border transactions and monthly fees. J.P. Morgan and other large banks have even introduced negative interest rates, where customers have the privilege of paying banks for holding their money (This is only the case for large deposits, at present). These issues can be circumvented when people create their own digital account by downloading a cryptocurrency wallet. They can then be in full control of their finances.
The future of bitcoin and digital currency
Bitcoin has been a huge success story, and many can proudly celebrate the 10-year anniversary of a technology that has laid the foundation for financial freedom. However, there is some evidence that the ‘professionalization’ of bitcoin is in some ways destroying the whole ecosystem. The professionalization refers to a reintroduction of third parties to deal with complex derivative products.
Bitcoin is in itself a simple product – a non-manipulated means of exchange between two freely contracting entities. As such, it is not possible for third parties to make money unless derivatives are created. These derivatives need banks, accountants, lawyers, specialists, custody solutions and more to comply with a regulatory infrastructure that is completely unnecessary due to the inherent nature of bitcoin. With the fractional reserve model, institutions will need to acquire one BTC and will then be able to lend out 100 more, in the same system that led to the 2008 crisis that bitcoin was created as a response to. The grand irony of what seems to be happening with the professionalization of digital currencies is that they are being twisted to resemble the fiat-based products they were designed to replace – and this is being heralded by many in the community as an advance instead of a takeover.
Nevertheless, bitcoin will continue to gain acceptance and adoption. Despite its mining issues, it is still one of the most decentralized cryptocurrencies on the market, and if a cryptocurrency is not decentralized, then it is useless in many respects despite any other technical capabilities. It will most likely proliferate and could, sooner than expected, become the world’s first unofficial world currency. If not, there are many decentralized coins with an emphasis on privacy that will continue to be useful in the years ahead. Had the bitcoin whitepaper not been released on October 31st, 2008, the world would be a very different place.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.