October 31, 2018 / 7:51 PM / 15 days ago

Breakingviews - Bitcoin remains a triumph of hope over experience

A token of the virtual currency Bitcoin is seen placed on a monitor that displays binary digits in this illustration picture, December 8, 2017. REUTERS/Dado Ruvic/Illustration

NEW YORK (Reuters Breakingviews) - Bitcoin’s short history is a triumph of hope over experience. The digital money is marking its first decade with a punishing slump. Fraud and regulatory zeal have dried up the issuance of rival cryptocurrencies. The underlying blockchain technology has yet to produce its first killer app. It’s a long way from the revolution envisaged by founder Satoshi Nakamoto.

She, he or they – Satoshi’s identity remains a mystery – wanted to give people a way to securely transfer money without banks or governments. The cocktail of tech cleverness, post-crisis distrust of the establishment and dreams of digital riches eventually proved irresistible. Bitcoin surged 20-fold last year and developers raised nearly $20 billion in just 18 months by issuing digital tokens in so-called initial coin offerings. They aimed to build everything from rival monies to secure messaging systems to prediction markets.

It was too good to be true. In June cybersecurity outfit Carbon Black estimated hackers stole $1.1 billion of cryptocurrency in just six months. Hundreds of tokens have gone defunct, victims of everything from outright scams to bad ideas and poor execution. China cracked down on crypto miners – who verify transactions and release new currency units – and offshore trading this year, having already banned domestic trading in 2017. The U.S. Securities and Exchange Commission blocked several proposed bitcoin exchange-traded funds and said most token offerings should be subject to securities laws.

Bitcoin’s price has plummeted by 68 percent since its December 2017 peak. Slow transaction times and huge energy needs of miners mean it’s unlikely to ever be anything more than a speculative vehicle. The ICO craze has fizzled, and no blockchain application has gained mass acceptance. By contrast, a decade after Tim Berners-Lee developed the World Wide Web, AOL was merging with Time Warner and six-year-old Amazon had sales of nearly $3 billion.

Nakamoto’s dream lives on, though. Venture capital from the likes of Sequoia Capital and Andreessen Horowitz is rapidly replacing ICOs as a source of finance for blockchain developers. Mutual-fund giant Fidelity is creating a subsidiary to offer cryptocurrency trading and custody services to institutional investors. San Francisco-based Coinbase, an exchange and digital wallet provider, raised $300 million this week, valuing it at nearly $8 billion. Perhaps another decade will see those investments bear fruit.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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