The bitcoin network came into existence Jan. 3, 2009, spawning the cryptocurrency market industry.
Among other things, the peer-to-peer (P2P) electronic cash equivalent system promised to replace fiat, revolutionize commerce on the internet, and render redundant those financial institutions (FIs) serving as trusted third-party intermediaries by establishing cryptographic proof as the foundation of payment.
Fourteen years later, it is primarily those “other things” that have set off a sprawling, investor-centric crypto industry, on-chain Web3 offshoots like non-fungible tokens (NFTs), as well as informed public and popular opinion of the digital asset class as primarily a volatile investment vehicle rather than a means of mass commerce.
Fiat, or non-commodity backed government issued legal tender, is still very much around. Fiat still drives commerce on the internet, and the role of FIs and central authorities with regard to payments has only grown more important as digital transformations sweep across industry landscapes and consumers increasingly use digital wallets to pay for goods and services.
But in achieving the primary monetary goal set out in its original white paper, a contemporary pulse check on bitcoin and its applications shows they have so far come up well short.
The Rise of a by-Product Industry
Embedded in that first minted on-chain block, the genesis block of bitcoin (block number 0) was the text, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
The text has been interpreted by industry observers as a snide comment on instability caused by fractional-reserve banking. It references a day-of headline from The Times of London. As stated in its white paper, bitcoin was born of the failures of the 2008 financial crisis and intended to use technology to prevent those mistakes — and other issues seen as endemic to the traditional finance system — from happening again.
Instead, some observers say, the crypto industry today operates a lot more like the fractional-reserve banking system than it does the traceless, trustless, technically secure architecture for global alternative transactions that was promised.
If bitcoin was supposed to be a reinvention of money, the cryptocurrency industry by-products it spawned have been embraced most by speculative investors.
While some merchants and consumers flirt with crypto payments for everyday goods and monthly bills, it is the massive, centralized trading exchanges that have come to dominate the industry landscape, and define it through their successes and failures.
Electronic Cash
As economist David Evans wrote for PYMNTS in the past, one of the benefits of physical cash is it doesn’t require intermediaries. Cash also represents, for many purposes, an entirely anonymous way to transact.
In a pared downs sense, these were the primary qualities the yet-to-be-unmasked bitcoin founder, known only by the pseudonym “Satoshi Nakamoto,” hoped to replicate by creating an internet-based, decentralized public-ledger-grounded, alternative fiat.
As a cash equivalent meant for the digital landscape, bitcoin’s early days were regrettably plagued by illicit use by holders of the assets who used the digital currency to purchase contraband on “dark web” marketplaces such as the infamous silk road.
Cryptocurrencies more broadly, beyond just bitcoin, continue to be a popular tool for global money laundering.
More legitimate, state-sanctioned efforts to leverage bitcoin and other cryptocurrencies in developing nations are stalling or flat-out failing.
Instead, dozens of governments and central banks around the world are currently exploring the feasibility of designing and launching their own digital currencies rather than relying on blockchain native cryptocurrencies.
Although bitcoin was founded with the stated goal of transparency, anonymity and individual economic liberty from governmental oversight, critics argue the inverse appears to be happening, noting that state-based surveillance of citizens is more likely to increase in this arena while at the same time, individual privacy and financial liberty among digital currency users looks set to erode.
Bitcoin’s Next 14 Years
Historically, successful payments businesses have tended to have exponential growth in their early years, driven by a positive feedback loop that saw widescale adoption, trust and usage of their platforms. As the theory goes, as more merchants and consumers want to use a payment method, other merchants and consumers will accept and use it, leading to increased uptake.
This has not been the case for bitcoin, as the crypto industry has become centered on leveraged arbitrage, trading and given rise to its own cottage industry of investment vehicles and platforms, many of which have failed. At the same time, bitcoin as a payment alternative remains an ongoing, will-it-won’t-it experiment while other crypto currencies, like litecoin, attempt to shoulder in and prove their own marketplace viability.
Time is running out for bitcoin to realize its ambitious goal of one day replacing money itself, and belief in that premise appears to be dropping entirely in some corners of the financial industry as the asset matures.
Depending on who you ask, bitcoin is either headed to $1,000,000 or set to suffer a further 70% reduction in value — a sentiment that seems to sum up bitcoin’s prospect as a payment method. Few want the value of their currency to be based purely on what another person thinks it is worth.
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