When a “White Paper” entitled Bitcoin: A Peer-to-Peer Electronic Cash System, by Satoshi Nakamoto was distributed unceremoniously back in October 2008, the way in which the World perceives money was about to change.
In fact what was happening is that a “Peer to Peer” computer protocol, known as the “Blockchain” was just about to be revealed, which has many functions and potential applications.
Bitcoin and Blockchain are not synonymous. Bitcoin cannot operate without the Blockchain.
Looking back to 2008 and the Collapse of Lehman Bros, the global economy was in a state of economic crisis.
The timing was auspicious, people were struggling and everyone seemed to blaming the banks.
What was being proposed looked like manna from Heaven.
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Three months later, in January 2009 the technology referred to in the white paper, Blockchain Technology, had appeared.
Eight years later Bitcoin has become the fastest growing, but least understood, asset class in the Financial World.
Money and monetary policy has been linked to power over 1000’s of years. It’s not new. Particularly when using money to control a population.
Bitcoin is being built around an internet protocol that can’t be shut down. A protocol that is not just specific to Bitcoin, but a protocol that will enable us to establish trust in society in a totally new way.
The Blockchain protocol is pretty much unstoppable now, although Bitcoin has far less certainty with regard to its future today, than it might have had in October 2008.
Bitcoin – Who is Satoshi Nakamoto?
The story of the development of the blockchain borders on the mythical. However what we can say is that Satoshi Nakamoto is a pseudonym for perhaps 4 or 5 people all collaborating.
What’s apparent is that a lot of work had been done before the White Paper was published.
A fact reinforced by the fact that the Blockchain technology required was launched just 3 months later in January 2009.
What expertise is required?
1. Cryptography – that secures the blockchain
2. Cyber Security of the blockchain
3. Software Architecture
4. Network Architecture
These are four distinct disciplines in specific silos. It is unlikely that any one person could operate across all of these fields of expertise.
There probably was another person hired to try and break the Blockchain. He or she would have been brought in later in the project and kept in the dark with regard to hardware and software configurations.
Whist various exchanges have been hacked since 2008, along with many wallets, the Blockchain has, so far resisted any attempt to undermine it.
Dr Adam Back very influential and is referred to in the initial “White Paper”.
How Is The Blockchain Structured?
- Blockchain is an Open Source Project (a Meritocracy).
- Blockchain is a database. Without any single controlling body. Computers are peers, no hirer.
- Bitcoin is an application that runs on the blockchain.
Bitcoin Price Is the First Time we’ve seen Hyper Monetisation
Hyper Monetisation/Hyper Inflation – there have been many examples of how hyper inflation has undermined the economy of a state or country.
In principle, at the launch of Bitcoin there were limits put in place to cap the Global supply of Bitcoin (Legacy Bitcoin) at 21 million.
That though is all in the melting pot with Segregated Witness – SegWit2X , Hard Fork – on the horizon. When it arrives it has the power to create a second separate Blockchain.
Number of transactions limited to 3 to 5 transactions per second.
2017 – 16 million bitcoin have been mined
21 million bitcoin is the cap for Legacy Bitcoin
SegWit2X – would take bitcoin cap to 42 million (Potential to grow again to 84 million)
Who is going to be funding the 2X blockchain? Institutional Finance? Are there any guarantees or are we just going to be speculating?
This is first time we have had to make these decisions regarding where to put our hard earned cash into Bitcoin and or it’s derivatives.
Gold too is theoretically not capped, we don’t know how much we have in the ground, or of what quality. But Gold has always been the chosen store of wealth for the wealthy in society.
The Hyper Monetisation Of Bitcoin
The phenomenal growth in the price of Bitcoin has, in my opinion been driven by greed. There is a massive amount of hype going around, and its pretty much all based on ignorance.
1. Speculative Demand – has been driven as people looked for alternatives after the Banking crisis
2. Transactional Demand – I am not seeing much transactional demand at all. People are gambling.
What we thought we knew is that Bitcoin is limited in amount and extensible. (No longer true!)
So can Bitcoin become worthless?
Is there a Bitcoin bubble? Fiat currencies can become worthless over night. Sure, they are subject to Government intervention and regulation, but without consumer confidence and continued belief and support, all currencies can be debased.
Bitcoin Questions To Be Answered
- What were the 7 Network effects required to drive Bitcoin Hyper Monetisation forward?
- What are the Tax Implications of dealing with Bitcoin in the UK?
- Which Countries are supporting Bitcoin, and which countries are not?
- What’s the future looking like for Bitcoin with all the new products coming on stream, including the proposed new 2X Blockchain
It’s questions like these that I’ll seek to answer in subsequent posts.
The price of a bitcoin can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets.
Consequently, keeping your savings with Bitcoin is not recommended at this point. Bitcoin should be seen like a high risk asset, and you should never store money that you cannot afford to lose with Bitcoin.
Protect yourself at all times, take responsibility for your own financial affairs and never speculate any cash you cannot afford to lose. In 2017 you will need to be a massively sophisticated Bitcoin expert to have any chance of understanding what is going on.