By Simona Macellari and Giulio Mazzanti
Back to the roots.
Most of the discussions going on recently in the crypto community are about the current price of Bitcoin, the rise of some altcoins, eventual “flippening”s by altcoins, its drops, its all-time-highs. Will Ethereum take over Bitcoin price? And then BCash, and then Ripple, who’s next?
Bitcoin dominance over the cryptocurrencies market has ranged, dropping to 45%, going up to 60% and then falling to its all-time-low around 32%.
However, 2017 has been seen by many as the year where Bitcoin consolidated itself and got the limelight of all major newspapers and general television.
Traditional finance started getting more involved thanks to the arrival of Bitcoin futures (CMOE & CME were the two first exchanges to allow them), and everybody got excited by Bitcoin’s gargantuan financial performance (around 1200%).
Some quite influential people told us that it’s a bubble, others called it a scam. Personalities like Joseph Stiglitz (Economics Nobel prize winner 2001), Jamie Dimon (CEO of JP Morgan, later he said that he regrets his previous statement) and even Jordan Belfort (the infamous Wolf of Wall Street) criticised it.
Another Economics Nobel prize winner (yes they seem to love Bitcoin so much), Paul Krugman said that it must be stopped, even rightly identifying its disruptive potential.
Should we be worried now? Krugman has a pretty poor record of misjudging groundbreaking innovations (e.g. the Internet)
Jokes aside, let’s indeed ask ourselves if it’s a Ponzi scheme.
We must dive a little deeper to find out what can we learn by answering this question and by looking at the complex ecosystem that it’s at play here.
Thanks to the people that have been working on it, the obvious answer is no.
Nobody invented Bitcoin to trick people into investing in it, just to earn a profit and then to dump everything (which is the definition of a Ponzi). Thinking that this is the case is just intellectually dishonest or the product of a remarkably uninformed opinion.
The hardcore hodlers, of course, don’t believe any of this defaming campaign; Bitcoin was not invented by cypherpunks to get rich.
Its ideological roots are very complex and in some way a blending of various political philosophies from free-market, Libertarians to Internet cypherpunks. Its founding ideas go from wanting to re-establish financial freedom for individuals, to introduce absolute confidentiality and privacy in Internet transactions, to reduce the role of Government in our daily lives by removing their control over our monetary systems.
On the technical side we can find a situation which was just as complex:
All of this was not created by a single individual: Yes, Satoshi Nakamoto created Bitcoin, but he was just the final brick in a decades-long effort of a passionate cryptographic community which struggled for years to build a viable virtual currency on the internet that doesn’t have to rely on intermediaries and third parties.
Cryptographers have been working on creating something like this since the late eighties, they progressively laid out various foundations but they couldn’t complete it. They had created a way to bring value and economic scarcity into the digital realm through the so-called proof-of-work, they had a way to prove the ownership of this proof-of-work thanks to asymmetric cryptography.(Here’s an interesting forum post by Adam Back, the inventor of Bitcoin PoW, about its origins).
What they were missing was solving the problem of double-spending: meaning that there was no way to prove that you didn’t send your “digital coins” to two people at the same time. (Copy and paste).
Bitcoin’s invention in 2009 was pure magic because it solved exactly this, one of the long-standing open problems in distributed computing: finding a way to reach a decentralized consensus. A decentralised consensus about the order of transactions, so that you can send the same amount of money just once.
Politics, technology and also a new way to think of decision-making processes.
Having to make social choices in a decentralized and anonymous environment is an entirely different issue from what the world has ever seen before. It comes with all of its interesting problems such as the struggle to establish reliable reputation systems (See Sybil attacks and the Byzantine Generals’ problem).
This gives new fire to the Open-Source community in a joint, and often unpaid effort to produce extremely high-quality code.
Open-source means that everyone capable of doing so can edit and improve the code; it means that different compatible implementations can be developed as long as they follow the same underlying protocol (the consensus).
This is what excites everyone who is involved in this environment.
The prospect of making huge profits didn’t motivate Satoshi and all the early adopters, that was just an incidental side-effect. Despite its constant price increase, early adopters didn’t sell; they never cashed out even if they would be extremely wealthy by doing so. At most, they used that money to sustain themselves while dedicating their entire life (often renouncing to their lives and career) to the development of the protocol.
They keep hodling bitcoin because they sincerely believe in the founding idea, the early adopters represent the principles behind Bitcoin.
Thankfully we can still rely on them for Bitcoin on-going development.
In these years those cypherpunks have been coding miracles out of Bitcoin code, discovering new possibilities and rewriting chapters of the history of Cryptography by finding unthinkable exciting applications.
Bitcoin had many upgrades over the years; it is now almost wholly different from what it was at the beginning.
The first thing you should be amazed about in 2017 is definitely not the price:
You should be enchanted by all of the significant innovations that have been crafted under the hood.
Segwit was finally activated in August, allowing for the activation of the Lightning Network technology. The necessary step for a new era of truly scalable off-chain transactions, finally we can start getting rid of high fees and at the same time regain privacy while still not having to rely on third-parties.
Pure scaling has never been the top priority as traditional trusted technologies work much more efficiently for that. Being centralized is good for scaling, but it makes no sense for Bitcoin. Suddenly we found out that we can scale as good as traditional systems while still keeping the whole thing decentralized and censorship-resistant.
This required an intense and coordinated effort of many developers to come up with a universal standard, called BOLT (or Milan protocol, decided after the Scaling Bitcoin 2016 Conference inside the offices of BHB Network thanks to a developers’ roundtable).
The possibilities Lightning Network could open are infinitely many: it could radically reshape the way we conceive the Internet itself through low-cost micropayments and incredible monetization possibilities. It requires a lot of effort and creativity to come up with and develop such a system, shifting the perspective on how we see Bitcoin’s transactions.
Lightning network was launched on mainnet at the beginning of 2018 and now the number of nodes is constantly growing.
Many other exciting innovations/projects are being deployed or have seen huge progress opening interesting scenarios for the future, among them: MAST, Schnoor Signatures, MimbleWimble, Confidential Transactions, TumbleBit, the Blockstream satellite (the first case of physical stuff), FIBRE, Compact blocks, OpenTimeStamps, Channel Factories and many more.
Some of those will be key to improving Bitcoin efficiency, privacy, fungibility, scalability, and decentralisation. You can read about most of this in greater detail and about which kind of problems do those projects solve precisely, in an extremely well-done summary by Rusty Russell at the beginning of 2017.Not surprisingly he now made a new updated innovation summary for the beginning of 2018!
Once again, early users weren’t (and are not) concerned about the price. They wanted to see more of this advanced tech stuff. While they didn’t care so much about the price, they posed the foundations for what we are observing today.
They did so because they were thinking differently, they were on an intellectual ride, all on the same journey to create this outstanding “living” creature that is the Bitcoin protocol.
A horizontal effort of different people who didn’t know each other, not companies, individuals who didn’t care about profit as much as they had the drive to change the existing reality.
Part of the joy of being in this industry is that we have front seats to the making of history, quite literally. We are watching this unfold, none of us know where this is going, and it is a really exciting time to be part of this.
Bitcoin evangelist and author of Mastering Bitcoin
Blindly admiring the money pouring into the system is not healthy, you are part of this organism, if you want to see the whole thing be successful, you should start going back to its roots.
Be hyped about the technology, support the developers, become a developer if you can study these topics, understand the true nature of Bitcoin, live according to the principles of Freedom it represents.
#Bitcoin pace of protocol innovation is at all time high (as price trends!)
Adam Back’s Tweet — January 4th 2017
This article makes some references to the importance of not seeing the price as the main priority when dealing with Bitcoin. However, we recognize the social utility of trading, which acts as a tool to bring market prices to their actual value