Celebrating 10 years of Bitcoin — what do we know in 2018?
Ten years ago, on October 31st 2008, Satoshi Nakamoto published the Bitcoin: A Peer-to-Peer Electronic Cash System paper. In his work he envisioned a payment system that was efficient, low-priced and tamper-resistant.
Moreover — based on cryptographic proof, it could completely overturn the reliance on middlemen, by introducing the “trustless model” and operating without any government, nor bank, nor financial institution involvement.
Before releasing the white paper, Nakamoto wrote all the code on his own:
“I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper.”
This is how Bitcoin, the first cryptocurrency in the world, with the potential of disrupting traditional financial systems, was created. Nakamoto’s paper was first issued among a cryptography mailing list known as the “Cypherpunks”.
Later, the idea of a decentralised currency opened the door for something much bigger — start of global adoption of the blockchain technology.
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10 years has passed, cryptocurrencies are trying to compete with traditional financial systems by offering a solution to their major limitations.
Cryptocurrencies possess all the attributes of good money, enabling to connect, exchange, transact completely independently, securely and (eventually) instantly worldwide, but their status is still a challenge from a legal, economical and technical perspective.
While singing “Happy birthday, Bitcoin”, let’s try to summarise what we know about bitcoin and blockchain now.
Bitcoin in 2018
Bitcoin is the best-know cryptocurrency in the world, is widely accepted as a means of payment by merchants, and is still experiencing growth in users.
But the question remains:
Will Bitcoin become official in the financial ecosystem?
The answer is yet unknown. And here are the challenges:
- Originally, Satoshi Nakamoto capped the number of Bitcoins that can exist hoping to create a digital gold, that would guarantee return of investment. Due to the mechanism of block reward the system was hacked and new coins could be created. The inflation was brought to the table and together with the unknown status of bitcoin in the financial ecosystem, it puts bitcoin in a gray area of investment.
- Regulators play a pivotal role in the advancement of the cryptocurrency sector. Most central banks still either don’t recognize bitcoin or don’t regard it as an asset. The legal status of the cryptocurrency varies substantially from country to country and is still under development in many of them. Legislation is trending more favorable towards the legitimization of bitcoin, but the process takes time. Here’s a list of countries that “say yes” to bitcoin in 2018. Given the high price volatility and the hacking vulnerability of crypto transactions, regulation should be introduced on a global scale.
- As crypto goes more and more mainstream, governments will seek to regain control. That means: a taxation mechanisms regulation will be introduced, countries will launch their own digital currencies on a ledger with the creation and distortion controlled by the government.
- As bitcoin is experiencing tremendous prices fluctuations all eyes of crypto trading community lie on it’s competitors.
- Technically bitcoin is not without flaws. It can process 5 transactions per second, while credit cards can process 1000 times more per second. Additionally, it’s transaction confirmation time can be over 10 minutes. Such technical scalability and capacity is unacceptable in modern ecommerce and there is an ongoing debate on how to fix this.
- Finally, bitcoin sceptics recall tulip bubble, saying that bitcoin market will crash at some point and the supply will greatly exceed the demand.
Fidelity Investments announced just a few weeks ago the launch of a new company that will offer digital-currency services to its customers. That only proves that big fish on the market are not giving up on crypto, rather are waiting for the perfect time to start the adoption.
Summing up, a payment system of the future may not be Bitcoin, but Satoshi’s vision prevails.
Blockchain beyond bitcoin in 2018
Fast forward to 2018 from issuing the Bitcoin whitepaper— the world beyond bitcoin has opened. There have been major developments in blockchain technology, namely the icebreaking Ethereum smart contracts in 2015, and many more.
On the one hand the early adopters are starting to prove pivotal with their blockchain projects. On the other hand, TechCrunch reported that more than 1,000 cryptocurrency projects are already dead.
One is certain though, blockchain technology can disrupt various business sectors, if the right problem is addressed with the right technology. Blockchain can be applied to almost anything; it’s just a matter of understanding the areas of application.
The decentralized nature of blockchain is useful in situations where there is a desire to minimise the degree of trust required between participants, or where participants would like to reduce their dependence on an intermediary party. Bitcoin and cryptocurrencies have proved this concept already in a financial ecosystem.
How about other applications of blockchain beyond bitcoin?
- It’s clear that blockchain can be leveraged in various ways, however visions of different projects and their practical applications are two different things. The Diffusion of Innovation Curve explains the adoption of innovative technologies well. Some might argue blockchain adoption is currently at the Early Adopters stage, some may say at Early Majority stage.
2. A large segment of blockchain development are crypto wallets, crypto trading platforms and dApps needed for cryptocurrencies. Finance related blockchain applications are still the most widely spread blockchain projects.
3. Blockchain was created as a means to ensure the security of transactions, so it plays a huge role in cybersecurity.
3. Tokenization gasped the attention of the blockchain community. The ability to represent the ownership of real world assets on a blockchain seems to be one of the most exciting blockchain application in 2018.
4. Blockchain projects already facilitate enterprise-size load, so the most likely is that big institutions will prove pivotal in global blockchain adoption, by offering pilot projects open to the public.
5. Like with every innovative technology in its early stage of adoption, there are still challenges that need to be addressed:
- Scalability — blockchain systems have hard limits on the number of transactions (block size, the total amount of gas in a block, etc). The transactions per second (TPS) factor does not facilitate the increased mining capability.
- Interoperability — it’s hard to build complex blockchain applications because open protocols for interoperability of blockchains, multi-chain frameworks, or a combination of both are still under development.
- Security — even though blockchain was not supposed to be hacked, there is widespread agreement in the community that blockchain platforms have room for improvement in this particular area.
- Cost-efficiency — popular consensus mechanism such as POW requires a lot of energy to run operations on blockchain. At present, miners are using 0.2% of the total electricity. If it keeps increasing the world won’t have resources to provide it by 2020. There are also different opinions about it. According to Koomey, total Bitcoin mining usage of the world’s electricity supply currently sits at about 0.1%. Importantly, it is not scheduled to continue growth at recent rates.
With all of the above said, at SoftwareMill we believe that blockchain is set to break the bedrock of modern technology. Innovation takes time and technology is always first, then come innovators, early adopters and finally a market awareness and consumers adoption.
We are taking part in an incredible journey. To the Moon! :)
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