Disclaimer: Despite my long-standing professional interest, I’ve invested in bitcoin only briefly. Though I’ve earned a 30% return in just three weeks when I did so, I soon realised this investment was not suitable for my risk appetite. So, unfortunately, this is not the story of how I’ve become a bitcoin millionaire.
In the past few years, bitcoin has become equally famous and infamous worldwide thanks to the media hype that followed its rising and falling evaluations. From a historical high of $19,650 in mid-December 2017, it crashed to just $3,200 one year later, and subsequently recovered to reach $7,000 in mid-December 2019. Quite a ride! Yet, the most interesting changes in bitcoin run deeper than valuation swings.
I became fascinated by bitcoin in early 2013. I first tried to buy some in October of that year (more on this below), and soon after, in 2015, I started teaching a course about bitcoin and blockchain. 2013 was an interesting year to approach bitcoin as things began changing really fast. These are the most dramatic changes I’ve observed since then, some more obvious and some less so.
When I first attempted to buy bitcoin in October 2013, I was an assistant professor at the American University of Beirut in Lebanon. After finding a bitcoin trader going by the nickname of habibit_961 on a semi-secretive forum, I suggested meeting at a famous cafe’ on the city’s Corniche promenade and offered three different meeting times. At the meeting, I would have handed $500 in cash over to habibit_961 in exchange for three bitcoin that he or she would have almost instantaneously transferred from her or his wallet to mine. habibit_961 never showed up.
I found that keeping track of transactions on a public ledger that didn’t require any trust in the transacting partner nor in a third party sounded simple and yet so clever. The cryptographic and the consensus protocols that regulate how transactions are recorded on the ledger make this trustless system sustainable. (Bitcoin’s consensus protocol is based on proof of work. Miners use substantial computing power to solve a difficult mathematical riddle in order to validate bitcoin transactions and record them in a block. This happens approximately every ten minutes.)
In my mind, bitcoin was money 4.0. It had no intrinsic value, of course, as commodities (or money 1.0) did. It also didn’t have value because it’s backed by precious metals (money 2.0) or because it’s mandated by a government (money 3.0), but because it’s supported by a community.
The more bitcoin’s popularity grew, the more its groundbreaking technological infrastructure – the blockchain – and its democratic governance became a liability.
By 2017, most bitcoin miners had agreed that the system badly needed an upgrade. The governance system, however, requires unanimous support to introduce any upgrade. With the vested interest of thousands of miners at stakes, unanimous changes are very hard to attain.
However, BIP 148 and BIP 91 were incompatible. Under BIP 91 the nodes would need to install a new software handling 2MB transactions, which could not be processed by the nodes following BIP 148. Failing to agree, the miners who supported BIP 91 had to split (undergoing a ‘hard fork’) and gave life to a new and better system, called Bitcoin Cash, which is incompatible with the original bitcoin system.
These events in the summer of 2017 highlight a few interesting and perhaps less obvious changes in bitcoin.
Being the original – hence the oldest – cryptocurrency and being resistant to change by design as just discussed, bitcoin is arguably the worst crypto payment system available. Not only Bitcoin Cash is superior to it, but dozens of serious cryptocurrencies inspired by bitcoin were designed to overcome its speed and scalability problems, ever since Litecoin, the world’s second cryptocurrency, launched in 2011.
To be fair, the growing popularity of blockchains should probably be also credited to other cryptocurrencies, such as Ether and Eos, designed to embed smart contracts. Smart contracts are both trustless and self-executing, and greatly expand what a system of tokens on a blockchain can achieve besides payments.