At 14, Bitcoin Is Beaten But ‘Battle Tested’

It might have come off as a Halloween prank – if anyone outside of a small group of crypto enthusiasts had seen it at all. The plan for Bitcoin — real internet money that circulates beyond the reach of banks or governments — hit your inbox on October 31, 2008.

Fourteen years later, Bitcoin has emerged from obscurity to a major, if enigmatic, role on the global stage. Leading financial firms offer Bitcoin in retirement accounts, and some countries use it as legal tender, although it has suffered devastating losses.

Bitcoin has shown remarkable resilience in its short life, but it faces a number of questions in the wake of its recent boom and bust. Regulators around the world are circling. And a new generation of cryptocurrencies lead by Ethereum offers credible alternatives.

Garrick Hileman, a visiting fellow at the London School of Economics whose research focuses on blockchain and cryptocurrencies, says Bitcoin’s resilience may be a reason for hope.

“It’s been battle-tested in a way that no other cryptocurrency ever has … both in terms of its longevity and how much value it’s secured over that time,” says Hileman. “Nothing else comes close.”

In 2008, the pseudonymous author Satoshi Nakamoto released a white paper that laid out an exciting vision in the midst of a global financial crisis.

After posting to an obscure cryptography mailing list, Nakamoto suggested that the internet could allow ordinary people to reclaim autonomy from centers of financial power such as banks and governments.

“What is needed is an electronic payment system based on cryptographic proof rather than trust, which allows any two willing parties to transact directly with each other without the need for a trusted third party,” Nakamoto wrote in the nine-page document detailing Bitcoin’s basic mechanics.

If the rhetoric was not polemic, the basic idea seemed – to some – downright revolutionary.

Essentially, Bitcoin users will keep track of transactions in a way that will make them difficult to fabricate, duplicate or reverse. When one user would send Bitcoin to another, everyone in the network would be able to see the transaction, record it, and attempt to update an immutable shared ledger known as a blockchain.

Bitcoin was launched in earnest in early 2009, but at first it circulated mostly among a hardcore group of users who fiercely debated what it could best be used for, what it was worth and how to persuade people to use it.

In 2010, Bitcoin made the leap from online experiment to real medium of exchange. Among the most important moments was a now infamous pizza order.

A man from Florida named Laszlo Hanyecz offered to send 10,000 Bitcoin to anyone who would arrange for two pizzas to be delivered to his house. That sum would be worth around $200 million today.

Shortly thereafter, Bitcoin settled into a role in the underground online economy. Seizing the fact that Bitcoin payments can be more difficult to trace than online banking transactions, people began using it as payment on the dark web, sometimes for illegal products such as drugs.

In 2014, the online marketplace Silk Road was broken up by the federal government in a highly publicized case. Months later, the major exchange Mt. Gox breach where hackers got away with nearly $475 million worth of Bitcoin.

Bitcoin’s price, which at one point had passed $1,000, fell below $400. The cryptocurrency would not hit four figures again until 2017.

Bitcoin’s next bull run began in 2017, coinciding with increased interest in the crypto’s underlying blockchain technology.

More merchants began to accept Bitcoin as payment, and many new cryptocurrencies emerged with ideas on how to improve upon Bitcoin.

While some of the new crypto attempts have stuck, others died out with the hype, which began to wane in 2018 amid increasing regulatory scrutiny. Bitcoin persisted as the most valuable cryptocurrency, but its price, which had approached $20,000, fell below $4,000.

Bitcoin roared back in 2021 when government stimulus programs intended to steer the global economy out of the COVID-19 pandemic sent consumers flush with cash. Investors poured billions into risky assets like cryptocurrency.

Bitcoin’s price at one point exceeded $65,000, and its total market capitalization exceeded $1 trillion. But then again, the good times wouldn’t last.

Economic policymakers put the brakes on easy money to fight inflation. This move led to moves in many investment classes, including stocks. But the collapse of cryptocurrencies was particularly punishing: In the fall of 2022, Bitcoin was trading around $20,000 – close to where it was at the end of 2020.

Nevertheless, the recent bull run brought in many people who had been skeptical of crypto.

Catherine Valega, a certified financial planner with Green Bee Advisory in Winchester, Mass., says she has seen inquiries about crypto from clients decrease. But the volume of interest in 2021 pushed her to learn enough about Bitcoin that she now believes it might have a place — albeit a small one — in an otherwise diversified portfolio.

“If you’re a crypto believer, you kind of think it’s similar to the early days of the internet or the early days of the iPhone,” Valega says. “It remains to be seen how it shakes out, but the technology is pretty incredible.”

Apart from the economic factors that have attracted risky assets in recent months, several factors could affect whether Bitcoin ever approaches the highs encountered in 2021.

• Other cryptocurrencies have capabilities that Bitcoin does not, and many of them use a more efficient protocol to verify transactions. One of the main criticisms of Bitcoin has centered on the environmental impact of mining, which uses more energy than any country does.

• Regulators around the world are still understanding the cryptocurrency craze of 2021 and its fallout. It remains to be seen if governments crack down on cryptocurrency or if they become more lenient and allow more types of trade.

• Bitcoin began during the Great Recession, but there hasn’t been a prolonged economic downturn in the time Bitcoin has been widely in circulation.

Hileman says Bitcoin’s path forward can be difficult to predict given the relative lack of historical data on the factors that influence its price.

“Fourteen years. It seems like a long time, but compared to stocks that have traded for hundreds of years, or bonds, it’s a drop in the bucket, says Hileman.