Satoshi’s Vision

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

This is the message hard-coded into the genesis block on the Bitcoin blockchain. It resonated within the cypherpunk community, where Bitcoin was born, focused around privacy and cryptography to regain individual control of communication, security and finance.

But would Satoshi Nakamoto be proud of the current state of Bitcoin and the cryptocurrency space as a whole?

Undoubtedly, what was once a proud ideology has become a haven for speculation, fraud and misinformation.

Of course, great progress has been made through cryptocurrency and blockchain since its inception, and new systems and use-cases are being built every day. The Lightning Network is growing, enabling off-chain scaling of the Bitcoin network and more people than ever are using cryptocurrency to send and receive payments globally. However, the majority of activity is focused on speculation.

As the bull-run of 2017 took Bitcoin and other coins to dizzying heights, the market was flooded with new investors interested in cryptocurrency, but more interested in profits. Many were unfamiliar with the tech, and had no interest in learning beyond the necessary information to buy and sell. The ecosystem quickly adapted to this influx and we saw the introduction of new exchanges and speculative tools to aid these new investors. However, as more and more participants hand over control of their private keys to these custodians in the name of profits, new dangers threaten the crypto-sphere.

Not your keys, not your coins.

As exchanges like Bitmex and Binance continue to increase their holdings via proxy, the cryptocurrency market begins to take on a similar shape to traditional financial markets, in which large centralized corporations, governments and entities effectively control the monetary and economic policies. Some of these exchanges act benevolently (at least while they’re able to profit healthily along the way). Others are much less honest, with inflated volume and dishonest practices. Several have been accused of trading against their own customers. Additionally, we see examples such as Bitmex introducing a new sort of futures contract with overt incentive to short-sell Ethereum, suppressing price in a large way. We see exit scams and hacks, such as Cryptopia’s recent shutdown. And perhaps more worrisome than all the rest, we see a push for institutional money and traditional banks to introduce themselves to the cryptocurrency market.

With these institution’s arrival, traditional market practices such as co- and re-hypothecation are sure to follow, largely marginalizing Bitcoin’s deflationary nature.

If allowed, hypothecation will allow central banks to use and issue Bitcoin under a fractional banking system, exactly as we have in inflationary fiat markets currently.

The primary difference is that instead of being issued as currency, it will be issued as a speculative investment and profit-maker for these institutions in the form of margin for trading. Hardly a perfect implementation of the ideals Bitcoiners hold to so dearly.

Will any of these issues kill Bitcoin? No. It will continue to exist, but not in the form which Satoshi envisioned while coding the software we know and love. Bitcoin will continue to grow and thrive, but is unlikely to ever be truly free of the burdens of a a traditional financial system. Government regulation and meddling will never be completely eliminated, and where there is centralization of power, there is a desire for more of it. Bitcoin is the antithesis to our legacy systems, yet many want to join the two in the name of profit. The ideals which Bitcoin was born of are perhaps too scarcely held, or too weakly proliferated to survive. Though it pains me to voice, I do not think the road we are traveling is the road Satoshi envisioned in front of his computer 10 years ago.

This is an opinion article, designed to promote discussion. As a trader and as a Bitcoin enthusiast, I would love to hear your thoughts. Talk to me on Twitter! @IDrawCharts and @OfficialDHolt