Bitcoin boomed in 2017, where will it go next?

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  1. Bitcoin came second place in Google's Year in Search 2017
  2. 'It will be like the dollar to all of the other cryptocurrencies'
  3. The Bitcoin community may come under more pressure

Now that Bitcoin has entered futures trading on major exchanges, WikiTribune decided to interview some experts on what’s ahead for the once marginal cryptocurrency. Is Bitcoin here to stay, or, according to one expert, does the “reality fall short of the hype?”

Bitcoin boomed in 2017. For starters, it came second place on Google Trends ‘Year in Search 2017‘ for Global News. Most enquiries were into how to buy bitcoins.

This year, its price skyrocketed from around $1000 in January to above $10,000 by November. When Bitcoin hit $19,000 on December 7, the popular cryptocurrency exchange Coinbase briefly crashed as it struggled to keep up with the surge of interest and demand. Recode, a tech-website, reported that Coinbase is now the No.1 iPhone app in the U.S.

Major exchanges have also now begun trading Bitcoin futures – a mark of its legitimacy for many. The Chicago Board Options Exchange has already started, while the Chicago Mercantile Exchange will follow suit on December 18. Futures are contracts that allow investors to bet on the price of something at a later date. Investors can now bet on the price of Bitcoin rising or falling without having to own it.

Is Bitcoin coming of age?

Bitcoin was created in 2009 by an pseudonymous figure called Satoshi Nakamoto in reaction to the 2008 financial crisis. The idea was to create a transparent, peer-to-peer system of money that was stateless and decentralized. It runs on a technology called blockchain – a digital ledger that records data, or blocks, which are secured and linked using cryptography.

Bitcoin’s journey has always been met with controversy as it travelled through the burrows of the black market to the establishment of major exchanges. However, these institutional investments do reflect a sign of it maturing, even if it’s still very much in its infancy.

WikiTribune interviewed some people involved in all cryptocurrency-related matters to better understand what lies ahead for this ecosystem:

  • David Gerard is the author of Attack of the 50 Foot Blockchain. He is a strong critic of the whole movement, and is one of the founders of the notorious r/buttcoin forum on Reddit, which mocks all bitcoin-related news.
  • Christian Catalini is an economist and the Career Development Professor at Massachusetts Institute of Technology (MIT) and an assistant professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.
  • Odysseas Sclavounis is a DPhil student at the Oxford Internet Institute and The Alan Turing Institute. He has done research on understanding the governance of blockchain.
  • Catheryne Nicholson is the CEO and co-founder of BlockCypher, a blockchain web service that enable developers to build, monitor and secure all blockchain applications.
  • Katharina Weltecke is the Public Information Officer for the World Food Programme – the food-assistance branch of the United Nations – in Germany. WFP is currently running a pilot programme using the Ethereum blockchain for refugees in Jordan, called Building Blocks, to make cash-based transfers faster, cheaper and more secure.

Now that Bitcoin is entering the futures market, is this a sign that it’s here to stay?

Both Sclavounis and Catalini agree that Bitcoin futures reflects the legitimacy of the cryptocurrency, but that Bitcoin may face more pressure in the future.

“Just like the conventional financial system, a lot of people are opening their eyes to what they think is this lesser-class. Bitcoin is great for them because they can suddenly earn way more money than they would usually have been able to,” Sclavounis said. “But as I understand it, the futures went live on Monday, and there’s been very little volume, so it’s yet to be seen. It still needs to grow organically, and that may still take some time.”

Catalini added that: “I think what will be really interesting to watch is also that as institutional investors come in, as futures come in, I don’t think the Bitcoin community realises the amount of pressure that will be placed on them, including the core developers. And so issues like the scaling debate or the governance challenges that Bitcoin has had will become even stronger when there’s so much pressure, financial pressure, for Bitcoin to perform.”

For Nicholson, however, this is “just a sign that futures trading is alive and well and that people still like to bet.”

How will Bitcoin evolve?

“I don’t actually think that Bitcoin will be a currency in the sense that you use pounds to buy coffee. I think that Bitcoin will be more like a global commodity, like gold,” said Sclavounis.”The way I foresee things happening, it will be like the dollar to all of the other cryptocurrencies, basically, so it’ll be the kind of gold standard. Bitcoin will be the most serious cryptocurrency around, and all of these other cryptocurrencies will always look to Bitcoin in transactions.”

Catalini sees Bitcoin’s largest potential in developing countries. “And in cases where you don’t have robust financial infrastructure today, and you could really leapfrog by jumping into a technology that potentially give access to financial services at a much lower cost.”

Bitcoin has been called a Ponzi scheme, a scam, and compared to the Dutch Tulip mania. What do you say to this?

David Gerard said that though “Bitcoin itself was founded sincerely, Satoshi Nakamoto had very naive ideas of economics, politics and human behaviour.But he wasn’t a crook. But crooks rapidly adopted Bitcoin, because there were lots of naive and hopeful people full of enthusiasm but who didn’t know much, and serial scammers preyed upon them – a lot of Bitcoin scammers have turned out to be serial scammers, with a history in mail fraud and so on.”

Both Nicholson and Sclavounis said that the mania around Bitcoin certainly doesn’t help these criticisms, but there is an underlying value to the cryptocurrency.

“There are two very different things going on,” Sclavounis said. “There’s the run-up in the price, completely insane and totally crazy and nobody can believe it. But also Bitcoin’s blockchain itself, as a kind of data structure which has all of these nice properties like immutability, etc., that has a lot of value. The bubble will burst at some point. It may keep on going five years down the line, but that’s not really what’s interesting. It’s just that it’s big in the media currently, so people are paying attention.”

“Everyone that started a bitcoin/blockchain company back then believed in the tech. There was very little chatter on investing, buying, derivatives, future price of bitcoin, etc,” Nicholson added. “Now that paradigm has shifted. Almost everyone getting into cryptocurrencies now are doing so because of the price. At the current price, I’m not sure it quite substantiates the underlying value. But make no mistake, there is a very strong underlying value.”

Looking beyond Bitcoin, where will blockchain go?

Weltecke from the WFP sees blockchain as a potential tool for improving humanitarian work. In the future, she told WikiTribune, WFP is keen on sharing its blockchain database with other agencies. “WFP remains the only actor in this space. We wouldn’t use the full potential of blockchain but we really hope that other agencies would come and join us in this.” So far, she’s reported that the pilot in the Azraq refugee camp in Jordan is going well, and that WFP will be expanding to other camps in January next year.

David Gerard, however, is more sceptical of blockchain’s future, arguing that it’s not that innovative.

“People keep trying to adapt the blockchain as a technology, but the reality is far short of the hype. The only use case I’ve seen for a full cryptocurrency-style blockchain is cryptocurrency. Some products marketed as “blockchain” are successful, but they’re functionally just a private database. Estonia’s KSX Blockchain, or the World Food Programme’s private Ethereum chain with only a single user would be good examples – they both work well, but the first isn’t actually a blockchain and the second might as well be a database.”

Find out more

For more information on Bitcoin, blockchain and cryptocurrencies, here are some good places to start.

  • The original Whitepaper by Bitcoin’s inventor Satoshi Nakamoto may be heavy-reading, but if you want to understand its inception, then it’s worth the read.
  • Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World by Don and Alex Tapscott is considered the first book to explain why blockchain is disruptive. Though bullish at times, it offers a good overview on how the technology works and how it’ll impact the world.
  • Banking on Bitcoin (2016) is a good documentary which gives a crash course on what Bitcoin is and an exploration into the lives of those adopting it.
  • Digital Gold: The Untold Story of Bitcoin by Nathaniel Popper charts the rise of Bitcoin and the personalities who helped build it.
  • BitCon: The Naked Truth About Bitcoin by Jeffrey Robinson, an author known for his work on international financial crime, is the first serious critique on the subject. He explores the get-rich-quick sentiment of the system and the cult-like indoctrination of the people who buy into it.
  • How Money Got Free by Bryan Patrick Eha, a former editor at business publication Entrepreneur, is a book about the pioneers of Bitcoin. These include entrepreneurs, hackers, drug dealers and ex-cons. The book is about the future of money, and opens up a debate about the relationship between money and liberty.
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