The rise and rise of magic internet money

What began as a thought experiment among cryptographers is now one of the biggest assets in the world. So, how did Bitcoin go from zero to hero so quickly?

Although incredibly smart people had been trying to construct a digital currency to match our digital world for decades, it wasn't until a white paper appeared on a discussion forum on February 11th, 2009 that things got real.

The post, by the pseudonymous Satoshi Nakamoto, begins with the now legendary words;

"I've developed a new open-source P2P e-cash system called Bitcoin."

He went on to state that his new invention was completely decentralised with no governing authority, and that it was based on cryptographic proof rather than trust. A whole infrastructure, which he called the Blockchain, would facilitate verification of all transactions by computers on the network.

So, people immediately rushed out to get their Bitcoin and everything took off. right?

Not exactly.

The only early users were cryptographers and libertarians. It was extremely niche, and a Bitcoin was only worth about 30c by the end of 2010. Very few people would accept Bitcoin as payment, and it was cumbersome and complicated for non-techies.

The next group who jumped on the bandwagon were rather shady characters who wanted to buy and sell with no financial records — they (wrongly) assumed that Bitcoin was completely anonymous. It became the currency of choice for drug dealers on websites such as The Silk Road.

During those early years, Bitcoin was either ridiculed, or more often, completely ignored. New crypto-currencies which used Bitcoin's Blockchain sprang up, but the whole space was (and in many ways, still is) misunderstood. By 2017, the ball had really got rolling and things were getting big enough for governments to start noticing too. Which, as is usual, meant lots of regulations. Some countries even tried to ban it completely and a lot of projects found themselves on the sharp end of legal charges. Everything was up in the air, and as scrutiny got tighter, the feeling of the old wild west began to disappear. But this scrutiny also garnered public interest and the boom started.

2018 was brutal

That boom was one of crypto's wildest rides in its short history. New projects on a daily basis and hundreds of billions of retailer investor money poured in. Bitcoin went from $1,000 in early to 2017 to almost $20,000 by December.

And then it all came crashing down. Billions were wiped out. Investors who had taken out loans and even mortgaged their houses lost devastating amounts . The big bad bear market started.

They called it Crypto Winter, and boy, did it feel like it.

For the doomsayers, the dream was over.

Crypto was a failure and everyone would have to throw away their utopian dreams of "wen lambo" and get back to the reality of a normal life. Interest in the space fell off a cliff, but behind the scenes, things were getting interesting.

No, no, and no.

Though Bitcoin was dismissed by most in traditional finance — The Oracle from Omaha, Warren Buffet declared it was "rat poison" — out of sight a few forward-thinking people were quietly adding crypto to their balance sheets, both at the institutional and governmental level.

Nation states, such as Bhutan and El Salvador saw Bitcoin for what it could offer and were slowly and cautiously adding it to their wealth funds.

Rumours began to circulate that a Bitcoin ETF (Exchange Traded Fund) was being discussed. Even some of the press, which had been sceptical of the whole thing, moved away from their blanket declarations that it was only for criminals and was destroying the planet because of its energy consumption to a more, shall we say, considered or balanced view.

Fast forward through the Crypto Winter, and another massive bull run occurred in 2020-2021 followed by another crash.

But this time the mood had changed.

People brushed themselves off and companies such as Microstrategy began buying Bitcoin in huge quantities. To date, they have holdings of well over half a million Bitcoin worth around $40 billion. Sovereign Wealth Funds in Arab states have accumulated many billions of dollars' worth, and even the United States — once seen as an enemy of crypto — is now promising a Bitcoin reserve. In El Salvador, Bitcoin is now legal tender, and in Argentina, Venezuela and Nigeria, Bitcoin is seen as the safest way to avoid rampant inflation. Bitcoin ETFs are now offered by numerous large financial institutions, with many more to come.

Bitcoin is no longer the ragged and rebellious upstart it once was. It now ranks as the 7th largest asset in the world by market cap, sitting just behind tech behemoth Google and above silver. If Bitcoin doubles in value from here, which happens in most bull markets, it will be in second place, surpassed only by gold.

It is now at the centre of a $3 trillion industry, and that number will surely rise, with macro-investor Raoul Pal expecting the space to reach a market cap of $100 trillion within the next decade.

So why did it take Bitcoin so long to go from the scrappy underground magic internet money to such explosive highs? The truth is hard to fathom, but one reason is simply the inertia of governments, big business, and the general public. People fear change, and Bitcoin was a massive revolution. It's no coincidence that most retail crypto investors are in their twenties and thirties — they grew up with the internet, and in an age when we can summon information or stream movies in an instant, the old legacy systems of banking with their slow transfers seem almost quaintly outdated. Plus, who wants to sit on stocks and shares in the hope of 9%-per-year returns when in crypto, daily swings of 20% are common.

In several years, it is highly possible that we will all be using crypto for online payments, perhaps without even knowing it. Gaming companies are already putting play to earn features in their games, and people will just become accustomed over time to dealing with it. Market vendors in developing countries — many of whom are unable to get a bank account — are using their mobile phones as their own personal banks, sending and receiving payments with crypto. The systems have become leaner and more user-friendly. Secure wallets are available online to store your funds, and governments are relaxing restrictions at an accelerated pace. If Raoul Pal is right about his $100 trillion prediction, crypto looks like it is here to stay, and the King will always be Bitcoin.

As for Satoshi Nakamoto, even now, no one knows who he is, but he might well be remembered as one of the most important people in history — the man who changed money forever.

Satoshi stopped posting on the internet forums under this name in April 2011 with his last post simply stating; "I've moved on to other things".