Bitcoin 10 years on and growing up
Nov 07 2018 · by Jonathon Miller
Category: Future Industry
In the midst of the 2008 financial crisis that dominated markets, news cycles, and politics, a historically significant publication was released. Authored by Satoshi Nakamoto – the pseudonymous person or group – the whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” would come to change the way we think about money, finance and a whole lot more.
The whitepaper was initially circulated among a small, niche circle of cryptographers and technologists. A few months later in January 2009, the hypothesis theorised on paper was brought to fruition, and the first ever bitcoins were mined.
Ten years later, this seminal piece of thought leadership has reshaped the world and from it, a range of technologies and new financial instruments have spawned. The underlying technology, ‘blockchain,’ has influenced areas beyond finance: identity, supply chain, logistics, and more.
Bitcoin fast became a calling card for those that wanted to challenge the dominant narrative of money – and trust.
Bitcoin has inspired and facilitated new ways of understanding money, value transfer, and the process of coming to a consensus.
The Bitcoin network enables fast, secure, and immutable transactions between two parties via the internet, no matter where they are in the world. This allows a system of exchange similar to that of cash, but parties do not need to be in the same location to transact nor do they need an established intermediary.
Traditional ledgers are managed and updated by a central individual or organisation, such as a bank. This forces users to trust this intermediary with their funds, to trust that the ledger will not be manipulated in any way. In contrast, bitcoin’s ledger is decentralised. It exists on thousands of computers around the world, all of which must come to a consensus when a new transaction takes place.
The community dubs this system trust-less. It represents a radical re-thinking of value transfer and trust that has brought forth a host of exciting and innovative technological advances that span far beyond the financial realm.
Bitcoin was designed to transfer monetary value between two parties. Bitcoin’s underpinning technology known as blockchain, however, is extremely versatile. Both established organisations and startups are utilising blockchain technology to improve identification processes, contracts, property transfer, supply chain tracking, logistics, and create distributed and trust-less organisational structures that rely less on the centralised hierarchical systems of the past.
Anything that needs to be recorded and indexed can be stored on a blockchain, and certain changes (such as the passing of property ownership from one party to another) can leverage the power of a blockchain and potentially be carried out automatically, with less or no intermediaries between transacting parties.
Code can replace individuals and organisations that traditionally ensured contracts to be fulfilled and executed. The code that exists on a blockchain has sometimes been called a “smart contract” - a programmatic executor and enforcer. The Ethereum network is the most well known proponent of such a system, but there are many other networks that make use of blockchain to enforce these new trust-less programmatic agreements.
Financial Markets rely on shared records for tracking stocks and investments, share ownership and worth, as well as rights associated with securities. In understanding that blockchain is an inherently disintermediating technology, it follows that this arena is ripe for disruption.
Indeed, blockchain technology makes it possible to encode such financial rights and information into tokens that can be cleared and settled – if exchanged with digital currencies or other digital tokens – without traditional financial market intermediaries (banks, brokers and exchanges). We see the beginnings of this evolution in ICOs (initial coin offerings) and now, security tokens.
ICOs, security tokens, and blockchain-based financial instruments present an opportunity for blockchain technology to become an integral part of the world’s financial investment infrastructure, but this is not without overcoming some significant challenges. Not the least of which come from governments and regulatory authorities who are coming to terms with the implications of this new technology.
Recently, cryptocurrencies have become a hot topic for governments around the world and for good reason. Regulatory bodies have begun grappling with an asset that, by its very definition, exists outside of centralised control.
The first substantive ruling on cryptocurrencies came in March 2014. The Internal Revenue Service, a US government body, stated that bitcoin would be treated as property for tax purposes. In the following years, other jurisdictions followed suit, defining cryptocurrencies as foreign currencies, financial assets, and other taxable assets. In Australia, the ATO views cryptocurrencies as property, meaning they are liable for capital gains tax (CGT) when sold for a profit.
2017 saw significant developments in the digital currency markets with the growth of ICOs marking an evolution in the industry. This has been followed in 2018 with an increased focus on regulation globally and the introduction by government agencies of frameworks to regulate the industry like other financial markets. This action could enhance credibility and trust in the broader ecosystem, legitimise the use of the technologies, and drive the evolution and growth of the industry.
Cryptocurrency has evolved. Bitcoin first gave rise to a multitude of likenesses in the form of “alt coins,” and then an array of new networks and systems that make use of blockchain technology.
The wave of businesses issuing cryptocurrency, ICOs, and now STOs to change the way we think about money and financial transactions is just one arena. Since bitcoin and blockchain’s inception ten years ago, a significant number of large businesses and creative individuals and communities have explored how cryptocurrency and blockchain technology can improve their services, evolve their business model, and change the way we think about many other sectors of our economy. From supply chains, to digital distributed identity, there are startups and established businesses experimenting with blockchain.
IBM, Intel, and Microsoft are among the big names exploring and developing their own blockchain applications. But, there are many bright, motivated startups, individuals and communities making use of, and developing, their own open source software that underpins this revolutionary technology. There are many opportunities to create efficiencies and to disrupt existing business models, and over the next 10 years we will no doubt see the emergence of a range of brand new business models that do not rely on the traditional trust based infrastructures.
For all of this, and more, we can thank bitcoin.
The first ever bitcoin transaction took place in January 2009 between Nakamoto and programmer Hal Finney. Later that year, the New Liberty Standard established a bitcoin exchange rate: US$1 = 1,309.03 BTC.
The following year in May, the first bitcoin transaction for a real-world product or service occurred when a Florida programmer named Laszlo Hanyecz paid 10,000 BTC for a pizza. In July of 2010, the first bitcoin exchange, Mt. Gox, was established.
In early 2011, bitcoin reached parity with the US dollar. By the end of 2012, the Bitcoin Foundation was founded to oversee the currency, Bitcoin Central became the first exchange to be registered as a European bank, and more mainstream companies – such as WordPress – began accepting bitcoin.
In March of 2013, the bitcoin market cap exceeded US$1 billion for the first time, resulting in a more widespread appeal of the currency. In November, bitcoin reached a record price of US$1,242. However, the following month, China’s central bank prohibited financial institutions from handling bitcoin transactions causing bitcoin prices to drop below US$1,000.
In the years that followed, bitcoin struggled to reach its peak price again. More exchanges entered the space, and the number of merchants accepting bitcoin grew steadily. Mt. Gox went bankrupt and shut down.
2017 saw bitcoin flood into mainstream news cycles. The currency’s price was on an upswing, ending November at almost US$10,000. With a record number of new investors entering the space, bitcoin hit an all-time peak of US$19,783 in December.
Now, in 2018, bitcoin has not yet reached it’s all-time high again and has sat somewhat steadily around US$6,000 and US$7,000. Bitcoin is now recognised by the general public. It is, however, institutional rather than retail investors making waves in the industry. Big names in finance – JP Morgan, Fidelity, HSBC, and Goldman Sachs, among others – have entered the crypto space. Today, more than US$7.1 billion of cryptocurrency is held by hedge funds, venture capital firms, and private equity firms.
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Category: Future Industry
Aug 29 2018 · by Jonathon Miller
ICOs and the future of smart crypto securities Read more