Happy 10th Birthday Bitcoin

It was on October 31, 2008, that an individual or group of people, writing under the name Satoshi Nakamoto, published what seemed to be a relatively modest, eight-page paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.”

The paper briefly discusses the drawbacks of payment systems that rely on third parties (financial institutions) to process payments, then lays out the mechanics of developing a cryptocurrency/system that facilitates direct transactions from one party to another.

The rest is history

Without delving into the technicalities of the paper, it has served as the foundation for the development of the cryptocurrency market as we know it. Fast forward ten years to today, and you have somewhere between 17 and 18 million (mining of Bitcoins is going on as you read) bitcoins “in circulation” against a predetermined maximum possible of 21 million. The value of a bitcoin has fluctuated dramatically, reaching a rate of one bitcoin equaling almost $20,000 before plunging dramatically and currently trading close to $5,000. Other cryptocurrencies, such as Litecoin, ZCash, Ethereum and others) have been equally volatile.

Bitcoin/Dollar Rate

Source: Yahoo Finance

Real currency or “avoid like rat poison?”

Bitcoin and other cryptocurrencies have their share of both fans and doubters, as well as a slew of unanswered regulatory questions. There are those who believe the world of currency and transactions is being revolutionized. Others such as Jack Bogle, founder of Vanguard, Warren Buffett, Charlie Munger, who made a dramatic comparison to rat poison, and others, have issued scathing statements regarding Bitcoin and cryptocurrencies in general. Particularly controversial is the discussion of whether Bitcoin and others meet the economic criteria necessary to be considered a currency by being:

1. A store of value – a commodity, currency or other type of capital that is tradable and can be stored for future use

2. An instrument of exchange – a widely accepted token that can be used to purchase goods and services and;

3. A unit of account – the function that allows users to keep accounts, value transactions, etc., such as financial statement accounting

But the times, are they a’changin?

In September, 2017, Jamie Dimon, CEO of JP MorganChase, referred to Bitcoin as “a fraud,” and most financial institutions appeared to agree. But there seems to be evidence of, if not a sea change, at least a slight shift. In May of 2018, Goldman Sachs, which had been publicly anti-cryptocurrency as a legitimate currency, publicly changed its tune. The firm has since been “considering” how to participate in the cryptocurrency market. One can now trade Bitcoin futures on the CFE, CME and even through your retail TD Ameritrade account. So love it or hate it, cryptocurrency appears to be here to stay….perhaps.