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Ten years of bitcoin is about more than boom, bubble and bust

Initially its primary usage was within the dark web and, in particular, the notorious and now-defunct Silk Road marketplace for all things illegal. To some extent cryptocurrencies remain a medium of exchange for illegal activity, particularly money laundering.


Early cryptocurrency exchanges established to facilitate trading of the digital currencies also attracted illegal activity, with a series of exchanges hacked and the digital money ‘’stolen.’’

For whatever reason, in 2017 the concept of cryptocurrencies captured mainstream attention and excitement. Having started the year worth less than $US1000, the value of bitcoins, and other digital currencies, soared.

Bitcoin hit $US19,535 in mid-December that year, giving the bitcoin market (roughly half the value of all cryptocurrencies) a value of about $US327 billion.

Then, as rapidly as it had spiked, the price collapsed through 2018. It ended last year at $US3829, or about 80 per cent off its peak. It is currently trading at about $US4000, valuing the bitcoin market at about $US70 billion.

The wild ride cryptocurrencies experienced in 2017 and 2018 points to the fundamental flaw in the vision of their advocates.

With some modest exceptions – there are some digital currency ATMs and some retailers and other providers of goods and services who will accept payment in digital currencies – they aren’t a functioning or broadly-accepted medium of exchange.

Moreover, the markets for digital currencies are opaque and shallow. This week the bitcoin price jumped 6.4 per cent in 30 minutes, from just over $US3800 to just over $US4000. One $US10 million transaction was cited as the reason for the surge.

The sheer volatility of trading undermines their appeal as a medium of exchange – no-one is going to sell real goods or services in exchange for an asset whose value fluctuates so wildly.


What 2017, and 2018, demonstrated was that at this point cryptocurrencies – now quite commonly referred to as digital assets as it has become apparent that they don’t actually perform as currencies should – are a medium for speculation rather than one of exchange. The 2017 boom was a speculative bubble; 2018 the bust.

While there had been a lot of talk about taking trading of digital assets mainstream, with some capacity for futures trading created, some work by the big Wall Street investment banks to establish trading platforms and some so far unsuccessful attempts to create exchange-traded funds nothing substantial has materialised. It’s a market for retail punters and hedge funds.

The problem for the remaining true believers is that, if digital assets were ever to become more mainstream currencies the regulators would move in to protect investors, minimise their usage for illegal activity and, to the extent that digital currencies were connected to the traditional financial system, to safeguard financial stability.

Ironically, given the original vision for cryptocurrencies, the best prospect for widely issued and accepted digital currencies would be if they were central bank-issued and regulated.

While digital assets remain a curious niche and an opportunity for wild speculation – chips at a casino rather than currencies – the underlying technology that was created to record digital currency transactions appears likely to be their lasting and most valuable legacy.

The blockchain, or distributed ledger technology, has myriad applications, particularly in financial services. The ASX is committed to using distributed ledger software to replace its CHESS clearing and settlement system and Australian banks have been at the forefront globally of experimenting with blockchain to track and settle real international transactions.

Distributed ledgers record transactions, verify ownership and ultimately facilitate the exchange of the currencies underlying the transaction. All the participants to a transaction have real-time access to the chains of information within the record that are relevant to them. Ledgers contain complete and immutable histories of transactions that update in real time and don’t need to be reconciled.

There are potentially vast savings of both cost and time in replacing conventional record-keeping and reconciliation processes with distributed ledgers.

Thus, while cryptocurrencies or digital assets might be a passing fad or, perhaps, just another vehicle for online gaming and the settlement of illegal transactions, the codes that ‘’Satoshi Nakamoto’’ wrote a decade ago may, unlike his bitcoins, leave a permanent legacy.

Stephen is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.

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