Bitcoin has now entered the financial and cultural mainstream, so WikiTribune interviewed a range of experts on what’s ahead for the once marginal cryptocurrency. Is Bitcoin here to stay or does the “reality fall short of the hype?”
Bitcoin boomed in 2017. For starters, it came in second place on Google Trends ‘Year in Search 2017’ for global news. Its price skyrocketed from around $1,000 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. 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. So 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 a pseudonymous figure known as Satoshi Nakamoto in reaction to the financial crisis of 2008. The idea was to create a transparent, peer-to-peer system of money that was stateless and decentralized. It runs on technology called blockchain – a digital ledger that records data, or blocks, which are secured and linked using cryptography.
Bitcoin’s journey has been marked with controversy as it traveled from black-market burrows – it was used on the illegal drug selling platform Silk Road – to the major exchanges. However, these institutional investments do indicate a long-term viability of the cryptocurrency, even in this early stage of its development.
WikiTribune interviewed some experts to better understand what comes next:
- David Gerard is the author of Attack of the 50 Foot Blockchain and is a strong critic of the whole Bitcoin movement.
- 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 researched the governance of blockchain.
- Catheryne Nicholson is the CEO and co-founder of BlockCypher, a blockchain web service that enables developers to build, monitor and secure all blockchain applications.
- Katharina Weltecke is a public information officer for the World Food Programme (WFP) – the food-assistance branch of the United Nations – in Germany. WFP is running a pilot program using the Ethereum blockchain for refugees in Jordan, called Building Blocks, to make cash-based transfers faster, cheaper and more secure.
Now that Bitcoin has entered the futures market, is this a sign that it’s here to stay?
Sclavounis and Catalini agree that while Bitcoin futures reflect the growing legitimacy of the cryptocurrency, it may face more pressure in the future.
“A lot of people are opening their eyes to what [is seen as] this lesser class [of currency]. 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 [December 10], 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 realizes 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,” Sclavounis said. “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 Tulip mania. What do you say to this?
Gerard said: “Bitcoin itself was founded sincerely. Satoshi Nakamoto had very naïve ideas of economics, politics and human behavior. But he wasn’t a crook. But crooks rapidly adopted Bitcoin, because there were lots of naïve 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.”
Nicholson added: “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. 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 sees blockchain as a potential tool for improving humanitarian work. She said that in the future 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 2018.
Gerard, however, is more skeptical 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 KSI Blockchain, or the WFP’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.”
Can Bitcoin scale?
According to the Guardian Bitcoin currently uses more electricity than Ireland, or to be more relevant, more electricity than a Visa processing centre that handles over a hundred times as many transactions as Bitcoin has. Even without the problems of climate change, can the world afford the electricity needed for Bitcoin to become more than a niche player? More prosaically, with only 21 million bitcoin available to mine, what happens to the business model for Bitcoin when mining ceases and the miners are no longer verifying bitcoin transactions whilst they mine for new bitcoin? Perhaps at that stage transaction charges for using bitcoin will be sufficient to reward the processors, and of course Moore’s law may continue to reduce such transaction costs. But the business model changes as we get closer to that 21 million and then alters when the 21 millionth has been mined.
Find out more
- The original Whitepaper by Bitcoin inventor Satoshi Nakamoto may be heavy-reading but it’s worth a read if you want to understand its inception.
- 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 is a 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.