28 Dec The Ascension of Bitcoin
Wow! What a year 2017 has been! As we all begin to look back at the year that was, there are numerous events or stories that could top any of our lists.
For me, the ascension of Bitcoin has to be at the top of any list as the most unexpected and incredible stories of the year. As I write this, a single Bitcoin is trading at $16,821.46, an increase of nearly 2000% from its 2017 opening price of around $858. A $1,000 investment in Bitcoin in 2013 would now be worth $1.2 million. By way of comparison, the NYSE has increased a bit over 15% this year and the NASDAQ nearly 30%. Both banner years for the two most tracked composite indexes. But, 2000%? Simply amazing!
But, my intention isn’t to sing the praises of Bitcoin or any of its cryptocurrency cousins. I simply want to understand why? What has caused this meteoric rise in the price of a Bitcoin. And, maybe more importantly, are we experiencing a new inflection point in the global monetary system.
I first heard of Bitcoin in 2010 when a colleague of mine was talking about how he was now “digging for Bitcoin gold”. What? Yes, he said he was “mining Bitcoin”, a form of virtual currency (now commonly known as cryptocurrency). Using one of his own servers, he was able to process, validate, and record transactions for a distributed “general ledger” called blockchain. In doing so, he was earning Bitcoins as his payment. At that point, he had earned 1.15 Bitcoins for his efforts (or more accurately his server’s efforts). I believe my response was, “you should get out more often….where should we have lunch?” Boy, was I ever wrong.
Those of us in cybersecurity started to hear about Bitcoin on a regular basis in 2015 when cyber-criminals (via ransomware) started demanding Bitcoin as the preferred form of payment. Certainly, the use of Bitcoin in criminal activities has impacted the price of Bitcoin…maybe even acted as a match to the Bitcoin fuse.
In the past, we have seen less than savory activities drive new technology. The prime example being pornography and the Internet. In its infancy, the Internet was being used by universities, governments and a handful of inventive tech start-ups, but the availability of Internet-based pornography drove millions “online”. Many argue that porn moved the Internet from the fringe to the mainstream…keeping it “alive” during its less glamorous beginnings.
But, the explosion of ransomware doesn’t explain it. Many economists are stumped, but generally agree that traditional financial markets embrace of Bitcoin over the second half of the year has spiked the currency. Others say it is simply based in the scarcity model…demand outweighs supply.
This, of course, makes perfect sense. But, doesn’t explain why or even how we arrived from a type of currency that people don’t understand or can’t explain, to the “talk of the town”.
Unfortunately, I continue to fall back on the unsavory… Is North Korea avoiding UN sanctions by trading in Bitcoin? Have the people of Venezuela lost complete faith in their economy and moved to Bitcoin? Are criminal organizations using Bitcoin to launder money?
Or, is it ALL really just hype? If so, this might be the most unsavory reason for Bitcoin’s ascension. The hype bubbles always pop…and what a big pop it would be.