This is truly the first time I follow the full cycle of a revolutionary new technology. I was around when the internet went through the same cycle, but I wasn’t aware of the impact it would have. This time I am, and it’s fascinating.
The price for a bitcoin climbed well above 11,000 USD yesterday, everybody starts talking about it and suddenly you’ll see an army of self-claimed bitcoin and blockchain experts out there, mainly talking about the price of bitcoin and other cryptocurrencies. While the price is surely impressive, the technology and how I think it will change all our lives is far more impressive. I’ve been hooked for a little more than a year now, reading and learning every single day. As an engineer with a background in signal processing and an understanding of the mathematical fundamentals, I didn’t have worst start conditions. Yet I am far from having a full understanding of this topic. It’s complex. But every single day I learn something new and every single day my fascination grows.
The bitcoin people are talking about is an implementation of the bitcoin protocol, which Satoshi Nakamoto described in his publication “Bitcoin: A Peer-to-Peer Electronic Cash System “. Using it as a currency is the first and most obvious application. Satoshi placed a message in the first block (Genesis Block) of the bitcoin blockchain: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”, making it obvious which industry he was after. However, the bitcoin protocol and the blockchain technology have the potential to revolutionize whole industries and societies. Because it removes the trusted third party from the equation. The weak spot, the human factor. It’s a system based on mathematics, trust-less and decentralised. I don’t want to dive into the details, as there are people who can explain this a million times better than. More on that later.
The first application is digital money. Decentralised, trust-less, not goverment controllable, independent money. You don’t need a bank to transfer bitcoin directly from one person to another. You don’t need to trust anybody. You control your money with your private key. You decide what you’re doing with your money and where you are sending it to. From anybody to anybody, anywhere on the planet. Instantly.
There are the five stages of grief, which Andreas M. Antonopoulos keeps describing in his talks: “Denial, Anger, Bargaining, Depression, Acceptance”. Similar to Mahatma Ghandi‘s quote: “First they ignore you, then they laugh at you, then they fight you, then you win.” Sometimes the stages overlap. For a long time bitcoin was simply ignored, some people deny it as “scam”, other entered the phase of anger. For example Jamie Dimon, chairman and CEO of JPMorgan Chase, who said investing in bitcoin is stupidand he would fire any of his traders if they’d invest in bitcoin. Around the same time, his bank was buying bitcoin. At the same time most banks are heavily invested in blockchain projects, trying to get into the boat (the bargaining stage). Some of them may have already realised the true potential of the technology and probably start panicking by now. They want to at least be part of the game, so futures will soon be tradable at NASDAQ.
Don’t get me wrong, we are still far away from mainstream adoption and ease of use. As Ari Paul, CIO of BlockTower Capital, pointed out: “It’s 1994 in Cryptocurrency”. These days, we are experiencing a major hype cycle. We are seeing a lot of new money floating into cryptocurrencies. While the total market cap of all cryptocurrencies was around 15 Billion USD in early 2017, the market crossed 300 Billion recently. I do believe that we are in a hype cycle these very days. A lot of people will invest money and many of them will get burned. Make no mistake though, the market will correct, but it will grow even faster in the future. This is just the beginning.
Remember, you can’t compare bitcoin to a stock and declare it to be too expensive. People have done that for many years now. Yet only a fraction of the capital in the market moved into cryptocurrencies. Currently bitcoin is mainly a store of value, some people compare it to gold. There are other currencies, each have their pros and cons. If there is a reliable, independent and flexible way to store wealth, which allows people to be in full control, people will use it. bitcoin is there since 2009 and it has not been hacked. Centralised exchanges have been hacked, people’s computers may have been hacked, maybe because their private keys weren’t in a safe place, but nobody hacked the bitcoin blockchain. And that while being the biggest target for attacks on the planet.
If you are fascinated or just curious and want to learn more, I highly recommend to start with watching presentations from Andreas M. Antonopoulos on his Youtube channel. Nobody explains this topic better. Start with his “Introduction to Bitcoin”. He also published great books on the topic, all available on his website. In order to understand the range of potential applications, I do recommend reading “Realizing the Potential of Blockchain”, available on the website of the World Economic Forum. Be careful though, there is a good chance you’ll get hooked, too 😉