Bitcoin, the most well-known cryptocurrency worldwide for the past decade, was initially introduced publicly by a pseudonymous group of developers called Satoshi Nakamoto in 2009, with the first Bitcoin ever mined being called the “Genesis Block”, or Block 0. Briefly, Bitcoin has gone through a series of boom and bust cycles in its 13+ year career after its first famously recognized transaction in May 2010 when a Floridian agreed to have two Papa John’s pizzas delivered in exchange for 10,000 Bitcoin.
Since then, the currency has evolved socially and in terms of value, exploding on the scene most recently in late 2021, when it reached a record-high value of $68,990. But how does Bitcoin essentially work, why was it created and how is it planned to perform in the future?
Bitcoin are generated through a mining process and given to software users that have solved pre-specified mathematical challenges that are referred to as hashes – or a 64-digit hexadecimal number – that encrypts transaction data stored in a block. BTC is therefore an asset whose transactions are stored on the blockchain. It was initially possible to mine bitcoin on a PC, but it has now become a proper task, as the growing amount of mining has lowered the chances of one solving a hash. Bitcoin also has an intrinsic system of recalibration, as when the hash resolving difficulty increases, mining costs increase as well, but the network also becomes more secure as there are more miners at work.
The currency is now the world’s largest crypto by market capitalization, and has inspired a number of other cryptocurrencies, such as Ethereum, after it grew in popularity. It is interesting then to tackle why bitcoin was ideated in the first place following the failure of the modern financial system with the crisis of 2007/08, and especially to the reliance on banks to be trustworthy financial entities and intermediaries. The idea was to create a financial model that would decentralize services and enhance customer experience by giving them more autonomy, therefore replacing the banking system with a peer-to-peer model that would not require third-party intervention.
The model slowly started gaining traction, especially as the younger generation grew and became more tech savvy in the mid-to-late 2010s. Bitcoin’s price first crossed the $1,000 threshold in 2017, and reached an all-time high four years later. But, as previously mentioned, Bitcoin is not a stable asset and has gone through various periods of fluctuation, with one of the major ones being the second half of 2022 due to a combination of factors, from the war in Ukraine to supply-chain and inflationary issues following the Covid-19 lockdowns.
Bitcoin therefore certainly has its downsides as well as its upsides. Bitcoin has demonstrated, in the past two years, that it is categorized as an old market asset class, such as other old market speculative tech assets that one could find on NASDAQ or the S&P500. As such, it cannot be considered a store-of-value asset as of yet, although the most passionate of traders do still consider it more of an investor’s asset than a medium of exchange due to its exponential growth until 2022. One of the most attractive propositions that Bitcoin has to offer is that no government or financial institution governs its network, with each user instead guaranteeing its operation while having more control over their personal information. However, its lack of stability in terms of value and digital nature means that its purchase introduces risks from hackers and scammers that attempt to steal from new or naive participants in crypto exchanges, as well as the intrinsic risk of Bitcoin having wild value swings over time.
How should we look at Bitcoin following its slump in 2022, as well as its overall journey since its inception? The fact that most of the world is again facing a difficult economic scenario in the past and next few years due to the Covid pandemic and other factors may lead to an additional phase of mistrust of financial institutions (especially as concerns high inflationary prices mostly in the Western world), may signal that trust and hope in cryptos like Bitcoin may soon reagin a concrete foothold, in particular if we consider that cryptos are becoming exponentially more popular outside the Western world but in big economies like Brazil, Turkey and Indonesia. European and American governments have also been relatively slow at regulating the assets, which signals that there is still a degree of openness even by centralized entities to increasingly adopt crypto in the future, but that is all yet to see.
