Amid the buzz and the fading excitement around Bitcoin’s future, which has calmed down over the past month, there’s a much more significant story that’s been largely overlooked. The true disruption isn’t Bitcoin itself, but the emergence of a new breed of online exchanges—community-driven digital currencies.
When it comes to technology, the first iteration rarely wins widespread adoption. Early versions of the web browser, search engines, email services, and social networks were groundbreaking, but they were eventually surpassed by more refined competitors. Bitcoin’s future, much like its predecessors, is tied to the latest advancements in technology.
So, what exactly is Bitcoin?
Bitcoin is essentially a computer protocol designed to function as a digital currency. On the surface, it might seem like a decentralized network of bank accounts. In simple terms, each user has a file stored on their computer, known as a blockchain, which serves as a community ledger.
Within the blockchain, there’s a record of every Bitcoin (or “BTC”) a user owns, along with a full transaction history. When you transfer BTC to someone else, the blockchain updates not just on your device, but across the entire network.
Bitcoin employs a clever cryptographic system to validate transactions and prevent double-spending. Users can also earn BTC by dedicating their computing power to support the network. Bitcoin was first launched online in January 2009, under a pseudonymous identity.
For a more detailed overview of Bitcoin, check out the end of this article.
Bitcoin remains the pioneer in this space and still holds a significant edge over its competitors. But more importantly, it has done the heavy lifting of familiarizing users with the concept of cryptographic currencies.
Launched in early 2009, Bitcoin initially hovered on the outskirts of the online economy, flying largely under the radar of mainstream consumers. It made occasional appearances in discussions on tech-focused websites like Slashdot, but mostly as a curiosity rather than a serious topic of conversation.
In February 2011, the launch of Silk Road, an online black market, marked a pivotal moment for Bitcoin, as it required users to make purchases using the cryptocurrency. As Bitcoin gained more attention, its value began to rise, attracting even more media coverage, which in turn drove its price even higher.
Also read: How Effective Are Cryptocurrencies As Digital Payment In The Future?
The Gartner’s Hype Cycle
Between April and June of 2011, Bitcoin experienced its first significant surge in both price and media attention, with its market value skyrocketing thirty-fold in less than three months. Supporters were optimistic, believing the currency was on the brink of widespread adoption. However, the excitement was short-lived, as both the price and the media frenzy quickly deflated.
The exact reason behind Bitcoin’s price collapse remains a topic of debate. Some attribute it to a massive security breach at Mt. Gox, the largest Bitcoin exchange at the time, while others argue it was simply the bursting of a classic speculative bubble. In the months that followed, Bitcoin gradually faded from the headlines, slipping out of the news cycle.
In the past two years, Bitcoin’s market value has steadily climbed once again, accompanied by a resurgence in media interest. If we were to chart the attention given to the currency, with its peaks, troughs, and peaks again—albeit with some exaggeration for effect—it might resemble something like this:
This is known as Gartner’s Hype Cycle. The concept behind the Hype Cycle is straightforward: emerging technologies often go through a phase of inflated expectations early on. When these expectations aren’t immediately met, the technology tends to fade from the public eye. However, over time, a more refined and practical application of the technology emerges, leading to its eventual mass adoption. In this context, the Hype Cycle could ultimately determine the future of digital currencies.
With the 2011 boom and bust now in the past, the 2013 surge raises the question: Is Bitcoin moving toward the Plateau of Productivity, or is it simply climbing a second Peak of Inflated Expectations? The path ahead for Bitcoin is undeniably uncertain, but its success so far can be attributed to several key advantages that are unlikely to disappear anytime soon.
Bitcoin: An Institution Without Headquarters
Bitcoin owes much of its resilience to its distributed, decentralized structure. While various ad hoc organizations have sprung up to promote and support the currency, Bitcoin itself operates as a peer-to-peer protocol, much like BitTorrent. This type of protocol represents the future foundation of digital currencies.
Eradicating a protocol like Bitcoin is an incredibly difficult task. Much like a language, it exists as long as there are people willing to use it, and it can’t be easily suppressed or contained. As long as the internet and a community of users remain, Bitcoin will persist.
A significant portion of Bitcoin’s market value stems from this perception of permanence. Much like a language, protocol, or social network, Bitcoin’s value grows as more people adopt it—the more users, the more valuable it becomes.
Designing a currency without a central authority is a politically charged decision, yet it has profound economic consequences. Since new units of Bitcoin (BTC) cannot be arbitrarily created by a central body, the currency inherently leans towards deflation, provided its use continues to grow.
As new users drive up Bitcoin’s price, the cost of goods (priced in BTC) keeps falling. This deflationary dynamic radically alters how consumers view savings, debt, and purchasing choices.
Will Bitcoin Go Away?
Although Bitcoin is unlikely to vanish, and a government attempt to ban it is unlikely to succeed, it continues to face several structural weaknesses that hinder its mass adoption and legitimacy.
Although Bitcoin is unlikely to disappear, and a government effort to ban it is unlikely to succeed, it still faces several structural weaknesses that prevent mass adoption and legitimacy.
The Bitcoin economy remains largely reliant on parasitic economic activities, such as currency speculation and gambling, as well as transactions that users often wish to conceal, like purchasing drugs on Silk Road.
The reliance on these activities may be exaggerated, as a survey of 1,000 Bitcoin users revealed that far more people reported making gifts and donations than purchasing drugs. However, reputation is crucial, and Bitcoin’s colorful history makes any corporate endorsement a challenging proposition.
Bitcoin also encounters technical and social challenges as it grows. While the community is generally welcoming, newcomers often feel intimidated by the vast digital wealth amassed by early adopters. Additionally, the intense focus on price and profit often mirrors the dynamics of a Ponzi-like culture, which can deter broader adoption.
More Cryptocurrencies will come
Bitcoin’s resilience in the face of its challenges stems from the unique service it provides: nearly free, nearly instant, and semi-anonymous transactions that bypass borders, governments, and banks.
This frictionless experience is something that users can’t easily find elsewhere, making it an appealing option for those seeking financial freedom and privacy.
However, this very advantage could also turn out to be Bitcoin’s biggest vulnerability.
As the first of its kind, Bitcoin enjoys the distinction of being the only cryptocurrency in town, which has contributed significantly to its early success.
Yet, this initial edge could easily erode if a rival currency emerges, backed by powerful industry support and widely adopted by major platforms like eBay or Amazon.
Imagine a scenario where a gamified cryptocurrency, socially driven and seamlessly integrated with popular platforms like Twitter or Facebook, enters the market. Such a competitor could quickly overshadow Bitcoin, appealing to a broader, more mainstream audience.
Additionally, Bitcoin could face a challenge from a state-backed cryptocurrency, especially one emerging from a progressive or politically bold nation.
Countries like Iceland or Antigua, with their unique economic landscapes, could potentially create a currency that is more stable, regulated, or even incentivized for global use.
If users could choose between Bitcoin and a state-supported alternative, the attraction of Bitcoin’s decentralized, unregulated nature might no longer be enough to keep it at the forefront of the digital currency space.
Thus, Bitcoin’s struggle to maintain its mainstream appeal could become more pronounced as more innovative or established competitors enter the field.
Conclusion
Despite its inherently transgressive nature, including the potentially ominous macro-level impact of structural deflation, the micro-level efficiencies of digital currency demonstrate its disruptive potential. It is a technology that is poised to infiltrate and eventually become an integral part of mainstream use.
In this broader context, digital currency could join the ranks of open-source software, wiki culture, and even the Internet itself—technologies that, though initially considered niche or unconventional, have gradually become essential parts of everyday life. A mainstream digital currency, in its final form, may evolve to be less anarchic than Bitcoin, but it will still hold onto the core of its transformative nature and political heritage.
While Bitcoin itself might never escape the “Trough of Disillusionment” in the Gartner Hype Cycle, the broader genre of digital currency is bound to thrive. Its future could involve more stable and widely accepted cryptocurrencies that evolve beyond Bitcoin’s original vision.
Currently, rival cryptocurrencies like Litecoin, PPCoin, and Terracoin do exist, but Bitcoin remains the dominant player, being the only one widely used outside the cryptocurrency enthusiast community. Its success has paved the way for others, but it is likely that the broader digital currency ecosystem will eventually eclipse Bitcoin in both adoption and significance.
Read more: The Future Of Blockchain Technology In The Gambling Industry
