This is the first of a multi-part series on cryptocurrency, examining the dream and promise behind cryptocurrency, the evolution of the technology, the challenges faced by it on the way, and finally, its future. You can read the second part here.
Cryptocurrency: The Dream
In 2008, in the midst of the global financial crisis, a whitepaper was published under the pseudonym Satoshi Nakamoto that proposed a radical new form of digital currency called Bitcoin. This whitepaper laid out the vision for a decentralized, peer-to-peer electronic cash system that would allow online payments to be sent directly between two parties without going through a financial institution. This represented a completely new way of thinking about money and finance.
The dream behind cryptocurrency was to create a form of money that was not controlled by any central authority such as a government or bank. Traditional fiat currencies like the U.S. dollar are issued and regulated by central banks, which control the money supply. Many people feel this gives too much power to these centralized institutions. Satoshi Nakamoto envisioned a currency that was governed by code rather than people. The rules of the system were embedded in the underlying software and cryptographic protocols, which allowed transactions to occur in a decentralized manner between individuals rather than being facilitated through intermediaries.
At its core, the ethos behind cryptocurrency and blockchain is one of transformative change. Existing models of finance, economics, and governance typically centralize control in the hands of the few – banks, governments, and large corporations. Cryptocurrency aims to shift that dynamic by distributing power across decentralized networks and communities. This has the potential to reduce corruption, increase transparency, and enable fuller participation in the financial system for people across the world regardless of geography, social status or identity.
This decentralization meant no single entity could manipulate the currency by creating excessive amounts of it or censoring transactions. Cryptocurrency is also pseudo-anonymous, as transactions occur between cryptocurrency addresses rather than real world identities. This provides increased privacy and autonomy for users compared to traditional financial systems. Additionally, cryptocurrencies are global by nature and can be sent instantaneously anywhere around the world with minimal fees. Proponents argue this provides greater access to financial services for the underbanked populations of the world.
Underpinning this decentralized digital currency was the innovation of the blockchain, a distributed ledger technology first implemented by Bitcoin. A blockchain is essentially a database of transactions that is replicated across a peer-to-peer network of computers. Every transaction that occurs is recorded in blocks of data that are linked together cryptographically in an immutable chain. This creates a permanent auditable record of all activity on the network.
The blockchain is decentralized because rather than being maintained by a single entity, it is hosted by thousands of computers distributed globally. It regularly synchronizes to ensure all participants have the exact same copy of the ledger. Transactions can be verified as valid by the network through advanced cryptographic techniques, eliminating the need for trusted third parties. This enables direct transfers of value on the blockchain while preventing double spending and fraud.
One of the key features of blockchain technology is its inherent security and resilience. Past records cannot be altered retroactively without altering all subsequent blocks, making the ledger essentially tamper-proof. The system is also highly transparent, as the record of transactions is visible to all network participants rather than being maintained privately by centralized institutions. However, users can still retain a level of privacy through the aforementioned use of digital addresses not linked to real world identities.
If cryptocurrency realizes its full disruptive potential, we may live in a world where money flows more freely between individuals rather than institutions. Financial services and opportunities for wealth creation are more universally accessible to all. Public records of significance like property deeds, voting rolls, and company registries could be migrated to public blockchains, creating greater transparency and immutability. And smart contracts – self executing lines of code – could even begin to complement laws and regulations for certain activities like financial transactions.
In the decade since its inception, Bitcoin and the blockchain have inspired a new era of innovation. Hundreds of cryptocurrencies have since been created that build upon the foundational principles of decentralization and transparency originally envisioned by Satoshi Nakamoto. While Bitcoin was intended primarily as a new form of digital money, other cryptocurrencies and blockchain platforms like Ethereum have taken the technology further to also enable decentralized computing and smart contract capabilities.
The ideals behind cryptocurrency of empowering individuals through decentralization and removing the need for intermediaries continue to drive development in the space. However, significant challenges around regulation, governance, and scaling need to be overcome before the technology can reach its full disruptive potential. The dream of a permissionless, trustless, and global monetary system is still emerging.
However, more than a decade-and-a-half after its launch, Bitcoin and blockchain technology undeniably remain highly speculative and experimental. At its foundation is an ideological cyberpunk, counter-culture ethos that mistrusts centralized power and envisions a world where financial control and agency lies more directly in the hands of individuals. In the next of this series, we look at how the platform got hijacked, or side-tracked, by individuals whose motivation was not financial freedom or revolutionary change, but more materialistic — to make money.