Twelve months ago, Miguel Cuneta revisited a piece he had written three years ago...and it's still aging well!
I published this post on Medium originally in early 2018. It has so far aged quite well but I will be adding a few updates on some of the sections.
I was a speaker at a Blockchain conference in Manila recently (Q1 2018), and a bold statement was made by one of my co-panelists during a talk about the future of cryptocurrencies and Blockchain tech. He said,
"We won't be talking about Bitcoin in three years".
Ironically, almost four years ago in 2014–15, when the price of Bitcoin was tumbling down, and all the rage in Wall Street was the magical "Blockchain technology", this statement was made over and over again too. We are seeing it again today, this time not from the wall street types, but from the silicon valley/startup/tech people.
Well, I have a bold statement to make too.
"By the year 2028, the Bitcoin protocol will be the standard for secure and censorship-resistant value transactions on a global scale. As its network effect grows, multiple layers of applications will be built on top of the Bitcoin Blockchain, and the world will see value and commerce flow like never before. Money will flow like pure information — instant, secure, unfairly cheap, open, borderless, and programmable."
We will no longer be sending money, we will be streaming money.
It is actually obvious once you truly grasp what the technology behind Bitcoin enables. And no, I am not talking about everyone's favorite buzzword, "Blockchain". I am talking about the Bitcoin protocol, of which the blockchain is merely a part of the system.
Money Over Internet Protocol
Bitcoin is simply a network of computers that constantly reach agreement over the state of a shared database.
- The network is made up of Nodes, which are actual computers running the Bitcoin software. As of today, there are about 10,000+ Nodes all over the world.
- They all reach agreement through a set of predetermined rules that cannot be changed without unanimous consensus among nodes. The rules keep every participant in sync and keep the integrity of the network intact.
- The shared database is the Bitcoin blockchain, which is a tamper-proof and public record of every transaction ever made in the history of Bitcoin, in chronological order, secure by proof-of-work. Because everybody is watching everybody else, no one can cheat.
The simple elegance of the Bitcoin protocol is what makes it work. With these three simple components, plus of course, bitcoins, the only currency accepted in the network, we now have the base protocol for peer-to-peer internet value transfers. The possibilities for new applications and protocols to be built on top of this base layer are endless. Things like Lightning Network, enabling near-instant and almost free transactions, are already a reality. Similar to how Uber or AirBnB were unimaginable just fifteen years ago, financial applications that are unimaginable now will emerge out of the permissionless innovation enabled by the open-source nature of Bitcoin software.
Death, Taxes, and Bitcoin
"Which is why Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right." — Nassim Nicolas Taleb
Running non-stop for nine years, with almost zero financial loss on the chain itself, Bitcoin has become the most reliable and secure financial network in the world. When you send a valid Bitcoin transaction, you can bet the farm on it that it will be sent and that it will be received by your intended recipient. It's right up there with death and taxes.
It has been subject to every kind of attack ranging from network attacks, spamming, social attacks, government crackdown, FUD attacks, hash power and mining attacks, contentious hard fork attacks, and more recently, brand hijacking from unscrupulous groups that spend exorbitant amounts of money to try and destroy Bitcoin. All the attacks have failed, and the network became more resilient as a result.
The Lindy Effect states that every additional period of survival implies a longer remaining life expectancy for things like technology. Nine years after its inception, Bitcoin has overcome most major risks that would pose a threat to the integrity of the protocol and the network. With each passing day, with each block added to the chain, the confidence in the network increases, and its network effect grows stronger.
One of the earliest risks was that there was a fatal flaw on the protocol level of Bitcoin. In 2009–2010, when Bitcoin was in its infancy, people were not really sure about how robust the software would be, simply because it has not faced any major challenges yet. By 2011, the best engineers and cryptographers in the world knew that this risk had been reduced to almost zero.
Going into 2013, during the second Bitcoin hype-cycle, the greatest risk was from the governments of the world — what if the US banned Bitcoin? What if governments made it illegal to own Bitcoin? The New York Bitlicense set an ominous precedent, but by the end of 2013, at least in free and democratic countries around the world, this risk had gone down to zero as well.
Update: After the recent Facebook Libra congressional hearings in the United States, it has become evident that Bitcoin has surpassed this stage of government risk when sitting US Congressman Patrick McHenry said this in his opening statement:
"The world that Satoshi Nakamoto, author of the Bitcoin whitepaper, envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation. And governments cannot stop this innovation. And those that have tried have already failed."
Secondary Market Challenges
And then there was the Mt. Gox hack in 2014. What was then the largest and most popular Bitcoin exchange in the world had been hacked, losing over half a billion dollars, and compromising the integrity of the fledgling cryptocurrency markets. The risk of losing the valuable secondary markets for trading Bitcoin was looming over everyone's heads, but common sense prevailed, and by 2017 we already had numerous regulated and liquid cryptocurrency exchange platforms everywhere in the world, with Bitcoin as the crypto-reserve currency, following industry best practices and better security protocols.
Update: By the end of 2018 and going into 2019, secondary market for Bitcoin has matured considerably. The Chicage Mercantile Exchange started offering Bitcoin futures, and companies like Bakkt are set to launch very soon. Fidelity Investments, with 2.6 TRILLION dollars assets under management, announced the launch of Fidelity Digital Assets, which offers Bitcoin as a full-service, enterprise-grade platform for securing, trading, and servicing investments in digital assets. ETFs are also seen to be an inevitable addition to the growth of Bitcoin's market.
Social and Technical Scalability Risks
The last challenge Bitcoin faced last year, in 2017, was the risk of a major hard forksplitting the network and ultimately compromising its integrity. A contentious hard fork eventually did happen, but it did not have the expected results. After the fork, Bitcoin rallied to new all-time highs, rising over 1000% in just three short months. The social scalability of Bitcoin had been tested, and it passed with flying colors. The users, nodes, and miners that make up the Bitcoin network had chosen the version of Bitcoin that they wanted to support, and the market responded positively.
Although the root cause of the split in the network was transactional scalability, Bitcoin still works well today, with transaction fees at all-time lows because base layer improvements like Segwit have reached 30% adoption.
Second layer applications like the Lightning network will be more than enough to facilitate transactions on the scale of VISA and other payment networks. The engineers that maintain and upgrade the software are hard at work with improvements on every aspect of the Bitcoin protocol.
Just like any new technology, there will be more challenges in these early development and adoption phases. The fact that Bitcoin challenges the status quo and breaks the lucrative positions of middlemen in the financial world is enough reason to assume that these attacks will continue and increase in intensity and in scope. The beauty of decentralized protocols is that they are not just resilient to attacks, they are Anti-fragile.
Could Bitcoin fail? Yes, nothing is impossible. The odds are pretty low at this point, given the examples I have given above, but nothing is certain. The thing is, it may fail in its current form, but technology is fluid and software adapts. Bitcoin cannot be uninvented. It is here to stay.
In the words of Nassim Nicolas Taleb, "It may fail; but then it will be easily reinvented as we now know how it works."