As the old saying goes – “If you haven’t heard about Bitcoin yet, you must have been living under a rock!”. Despite this worldwide notoriety, most people in every country have no idea how this electronic money came to be, or how it functions. One of the most fascinating aspects of Bitcoin is the fact that nobody has ever admitted creating the software behind it; the person or persons remain unknown after more than 13 years of operation.
Before Bitcoin went live on January 3rd, 2009, its creator authored a white paper under the pseudonym Satoshi Nakamoto. Today, this white paper is viewed as a game changing document in the world of computer science; it’s a dry read, and one which will likely fail to entertain all but the most technical of readers. Study the document deeply, however, and the white paper reveals Satoshi’s dismay over the bailing out of many of the world’s largest banks.
The Beginning
The libertarian values that spurred the development of Bitcoin were all it took to sustain the currency in its first couple of years. People were mining the currency because they believed in the idea of a world without banks, but in truth, there was very little monetary utility to Bitcoin at that time. The situation was so extreme that when somebody managed to purchase a takeaway pizza for 10,000 Bitcoin’s on May 22nd, 2010, it was so unusual that the occasion managed to go viral across online forums and social media.
By 2011, Bitcoin had come to be known as a “cryptocurrency” and was starting to become better known amongst gadget fans and hardcore computer users around the world. This cryptocurrency finally caught its first big break in February when the “Silk Road” marketplace appeared on the dark web, finally providing holders with a genuine means of spending their digital coins. This was a double-edged sword, however, as the illegal nature of many products listed for sale on Silk Road caused many people (including governments) to begin associating Bitcoin with illegal activity.
Gaining Legitimacy
The price of the coin rose significantly for the first time in 2012, shooting all the way from $1 to more than $12 in just a few months. This led to a huge increase in publicity around the cryptocurrency, and it wasn’t long before Bitcoin moved from the Dark Web to the regular web. One of the first legitimate industries to spot the opportunity presented by cryptocurrency was the gambling industry, particularly in countries such as the United States where online gambling is not illegal, yet financial transactions to and from betting companies are banned.
This created an opportunity for existing website operators to go from offering the free demo slots to offering real money games for the first time, utilizing cryptocurrency as the payment method. Brand new games of chance were dreamed up by people who could never get a full online slot published but were more than capable of developing simple games using their skills in programming and math. The casinos were soon joined by sportsbooks and poker rooms, and it seemed as if Bitcoin was finally on the road to mass adoption.
Major Setbacks
When an asset appreciates in value by several thousand percent, it isn’t surprising that the mainstream media will take an interest in what is happening and how it came to be. The increased attention was initially welcomed by Bitcoin’s supporters, but it wasn’t long before the shadier aspects of the currency’s past began to overshadow the positive aspects of the new interest.
Aside from the negative publicity, Bitcoin isn’t perfect – the underlying protocol can only support a limited number of transactions per second, and transactions can occasionally take a long time to be confirmed by the network. The situation is exacerbated by Bitcoin’s facility for users to specify the amount they wish to pay miners – the people who facilitate the transactions – to process each transfer.
People often feel as if they have no choice but to pay a higher fee so they don’t get stuck at the back of the line for processing, and this can eventually turn into a vicious circle of ever-increasing fees and longer transaction times. Several attempts have been made over the years to address these issues, with limited success. The group of people who are responsible for developing Bitcoin today seem unable to reach a consensus on which is the best way to solve problems. Until this group can agree on the best way forward, the currency will stagnate.
Where We Are Today
When Tesla announced they would begin accepting Bitcoin as payment for their vehicles, many people thought it would mark the beginning of a period of widespread mainstream adoption of cryptocurrencies. But it wasn’t to be – only a few months after Tesla began to accept Bitcoin, they changed their mind, citing environmental concerns. This is a valid concern – it is difficult to know how much of the electricity being used to mine Bitcoin is coming from fossil fuels and how much comes from renewable sources, but we do know that the amount of electricity being used is enormous.
China was once the bitcoin mining capital of the world, but this has changed over the last 18 months after the country moved to ban all such activity within its borders. This has sparked a mass exodus of bitcoin farms from China to other countries such as the United States and Kazakhstan, and it will be a while before we can gauge whether this will have a net-positive effect on Bitcoin’s environmental credentials.
In summary, while Bitcoin has a reputation for being bad for the environment, many people are going to have strong reservations about using it. If Bitcoin transactions cost more than making the same transaction by other means, there is very little reason for many people to use it. And finally, if a Bitcoin transaction takes so long to process that it is inconvenient for small purchases, many more people are going to refuse to use it. With all these factors combined, it is perhaps no surprise that Bitcoin continues to languish.
