A decde ago this Wednesday, just weeks after the collapse of Lehman Brothers and the start of the financial crisis, an anonymous figure published the famous essay – “Bitcoin: a peer-to-peer electronic cash system”.
Bitcoin’s mysterious creator, known under the pseudonym Satoshi Nakamoto, has to this day never been unmasked, but his invention has since found global fame.
Bitcoin was created to address the fact that “no mechanism exists to make payments over a communications channel without a trusted party”. It sought to revolutionise the way we make payments and remove the need for a middle-man, in the form of banks and financial institutions.
So 10 years on, would Satoshi be happy with his invention’s progress? And looking ahead, where will bitcoin be in 10 years’ time?
Much of the conversation around cryptocurrency has focused on bitcoin as an investment class, with wild swings in prices making (and breaking) bitcoin millionaires overnight. As a result of the hype, price is often used as a signifier of the health of bitcoin.
This is largely unhelpful. A better marker with which to evaluate the success of bitcoin is to judge it against its original goal of becoming a globally accepted method of payment.
While you’re unlikely to be paying for a pint of milk in bitcoin right now, don’t take this as a sign of failure. Criticism around the seemingly slow pace of adoption could have been levelled at other transformative technologies of the past – like the internet, which took far longer than 10 years to be embraced by the mass market.
The reality is that in its first decade of existence, bitcoin has made significant progress towards achieving its initial goal. And that is only set to continue.
Currencies become obsolete when something more efficient comes along. We’ve gone from cowrie shells, to gold, to coins, to paper, to cards, to contactless – with countless other methods in between. In many ways, bitcoin is already proving itself more efficient than traditional payments.
The first, sometimes misunderstood, improvement bitcoin offers over today’s dominant payment methods is transparency of transactions. Payments made in bitcoin are recorded and made publicly available on a ledger recording transactions between wallets.
Bitcoin can also act as a safeguard against hacking. With online banking now the norm, fraud is one of banks’ biggest concerns. Bitcoin payments, on the other hand, have the potential to increase security – removing the middle-man from a transaction removes a key entry point for hackers.
Lower fees for cross-border transactions are also a benefit. If bitcoin were adopted across the world, it would be cheaper to make international transactions, as exchange rates and fees would no longer apply.
Lastly, and most importantly to bitcoin’s founding mission, the cryptocurrency is free from government intervention in the form of monetary policy. If you’re earning Argentine pesos while they’re suffering from severe inflation, a global, non-government currency can be very appealing.
Today, bitcoin is accepted by a vast variety of organisations – including Microsoft, Expedia, Bloomberg, Save the Children, Wikipedia, Virgin Galactic, and Whole Foods. That’s phenomenal progress for a currency that only launched 10 years ago.
Yet as with most game-changing technologies – the steam engine, electric power, email – success does not happen overnight. Bitcoin has much further to go. In a recent research paper with Imperial College Consultants, we set out six key challenges that need to be overcome before cryptocurrencies reach mass-adoption: scalability, privacy, regulation, incentives for use, design, and volatility.
Encouragingly, progress is being made in all areas. Regulation, for example, is being hotly debated at governmental level across the world. Bitcoin is on-track to become mainstream sooner than most people think.
Could we all be paying for our weekly shop or takeaway with bitcoin in another decade? I don’t see why not.