In January 2009, an unknown person or entity called Satoshi Nakamoto mined the first ever block on the Bitcoin network with the intention of creating a peer-to-peer digital cash system. Nine years later, Bitcoin has become known as a ‘marmite investment’ due to high volatility, creating millionaires of the early adopters and leaving recent purchasers of the digital currency wondering what the future might hold.
Satoshi and Bitcoin evangelists believe that when a currency isn’t backed by an asset of value, it’s only truly worth the paper it’s printed on. Historically, western currencies have been backed by gold, with additional cash only released into the economy when more gold was acquired. Since the early 70s this concept was abandoned as governments chose to create money on whim alone, a process that has arguably been abused, plunging many countries into crippling levels of debt.
Decentralising the banking system
Those with savings in the bank must always contemplate what would happen should the bank go bust. Luckily, most UK savers are insured up to £85,000, providing some level of comfort — but what happens if a country goes bust? Think it would never happen?
In 2013 in the depth of a banking crisis, Cyprus decided to unilaterally remove money from customer’s accounts in Cypriot banks to prop up the banking system and the country with it. Yes, you read that right. The government took money out of the banks and paid it to themselves. A ‘haircut’ of up to 50% was reported, overnight, with no warning and no recourse.
Satoshi’s vision was to have a currency backed by value that was owned by the users of the system. Decentralisation of the entire banking system, peer-2-peer transactions only. No banks, no government interference, no geographical boundaries — a system able to quickly, easily and inexpensively transfer money from one account to another with complete transparency that the transaction had taken place. The Bitcoin blockchain was born and so began the revolution.
Mining the blockchain
The blockchain is at the heart of the digital currency. It is a digital ledger of transactions that have taken place, made secure by having a large volume of participants all agreeing on what those transactions were, preventing any modifications to the ledger. As transactions are made, miners add these transactions to the blockchain and by doing so, they get a reward of Bitcoin. This way, the digital coin has a value because it has cost time and money to earn it — and only 21 million Bitcoin will ever be available, making it a closed and finite system.
In the early stages Bitcoin needed to be adopted as a currency in the real world to have any tangible value to the common man, and in a relatively short space of time a number of very high profile businesses such as Virgin Airlines, Expedia, Microsoft and Subway began accepting Bitcoin, which gave it access to mainstream viability.
Over the last few years, Bitcoin has made media headlines for shooting up, or indeed plunging down in value; with only a minority aware of what it is and what the original intentions were.
Bitcoin was never supposed to be a get rich quick scheme. It was supposed to change the world.
Towards the end of 2017 Bitcoin reached an all time high of just shy of $20,000 USD per Bitcoin, a price that represented an annual increase of over 1,000%. The increase in price has raised more than a few eyebrows and has been labeled everything from a Ponzi scheme to the future of global currency.
So what will happen now? The truth is, nobody knows for certain, and even those with huge amounts of knowledge, experience and insight can’t come close to agreeing whether we’ll see Bitcoin hit $50,000 soon or drop back down to $5.
Bitcoin was never supposed to be a get rich quick scheme, it wasn’t really supposed to be an investment at all. It was supposed to change the world. It was designed so that people could de-risk themselves from holding a currency that was only worth the amount printed on the banknote because a government said it was; and instead they could hold a currency that was worth what someone else wanted to pay for it. Most importantly 50% of it couldn’t be borrowed by a struggling country whilst you were sleeping.
Dean Graham is a Director of Stonebow Media and an amateur enthusiast in crypto-currency. This column in no way represents investment advice or a recommendation from the author or the publication.