Home Tech How the world hijacked bitcoin in 2017

How the world hijacked bitcoin in 2017


An appropriately gnawing feeling is triggered in the pit of my stomach when I am reminded of the film The Wolf of Wall Street. It is a brilliant retelling of the story of a real-life individual, who, with abandon, seized upon the opportunity afforded him by the way the global financial system is set up to rip off all and any investors by using their own greed against them. The discomfort the film gives me, as entertaining as it might be, is rooted in the thought that the veil has been lifted and that, rather than it being a cautionary tale of how one motivated bad apple can ruin the barrel for everyone else, The Wolf of Wall Street is actually indicative of broader realities. And that is that the sprawling network of banks, brokers, payment processing companies, money exchanges and institutions that make up the conventional financial world keeps me, by accident or design, at a distance, never really allowed to be a part of it, only permitted to make use of it on their terms and for a fee. This is a system made not for the end user to access services, but for those within it to maintain the illusion that it is equitable. This feeds into the basic human instinct to trust. Otherwise, we would never make a single investment that wasn’t hoarding gold or cash under the bed. There are many libertarians who feel seemingly just as exasperated as me. Unlike me, they have attempted to find a better way. What they did was grab hold of an idea designed to make an electronic cash payments network function between individuals without the need for a centralised system to run it. That concept was bitcoin.

The frenzy has lifted the price of bitcoin from US$1,000 each, at the start of last year, to more than $13,000 yesterday, on Coindesk’s bitcoin price index.

Hearing Jamie Dimon talk out the side of his mouth, calling bitcoin a “fraud” in September, less than a month before the bank he runs, JP Morgan Chase, said it was investing in the technology behind it, blockchain, gives the impression that Wall Street’s top dogs are trying to stay at the head of the pack in order to steer its future. The European Union also jumped into the fray last month, saying that it planned to tighten rules to stop cryptocurrencies being used for terror financing and money laundering.

That follows the seeming watershed last month of bitcoin futures being traded on regulated US exchanges. The rush by investors, institutions and governments to get some kind of handle on the cryptocurrency last year lends weight to the idea that the bitcoin experiment – and that is what it is – can be subject to an effective reverse-takeover by the mainstream. This misses the entire point. To understand its original intent it is worth going back a few years to a pivotal time in this most modern of centuries.

Humble beginnings

While trust right now might seem to be in short supply, it was almost obliterated a decade ago. About a month after Lehman Brothers collapsed in 2008, sparking the last financial crisis, these words were published online: “We have proposed a system for electronic transactions without relying on trust.”

That word: trust. What a loaded term it had become by September of that year following the failure of one of the world’s most prestigious financial institutions. The response from government officials in the United States and around the world from then on would have implications that still affect us today and could still have unseen consequences. Quantitative Easing, or QE, effectively the printing of immense amounts of money to pump back into the system to keep it from eating itself, also destroyed any notion of money’s scarcity and, more importantly, psychologically, the belief in its fundamental promise was eroded.

The original bitcoin white paper was authored by ‘Satoshi Nakamoto’ (whose true identity still remains a mystery) and published in October 2008. It offered an idea for tackling the weakness in any peer-to-peer electronic cash payment system: namely that it would not have a trusted third party to process transactions, mediate disputes and tackle fraud. The bitcoin concept takes as read that the absence of a third party, such as a bank, is desirable. Following on from this was tacit acknowledgement that the system should not be based on any kind of trust.

“What is needed is an electronic payment system based on cryptographic proof instead of trust,” the nine page ‘Satoshi Nakamoto’ white paper says.

The coin aspect of bitcoin was meant as an incentive to keep those working on the blockchain of transactions honest. The point of generating coins, as blocks are added in the chain, was that it would mean that it would be far more profitable to play by the rules and create more bitcoin than expend time and energy defrauding, or attacking, the system. The coin was not the main point of bitcoin. However, the conventional approach to how we invest and seek value has made the coin central to the experiment and the result is that a bubble has been created around it. In the early years, following the white paper’s publication, those claiming to be ‘Satoshi Nakamoto’ had to work hard to recruit others to the project and a bitcoin had no value.