Bitcoin was going to alter the face of finance.
But since last Spring, the cryptocurrency movement seems in crisis, with many pundits in the sector pronouncing Bitcoin’s ultimate demise is imminent – and not for the first time.
A staggering share price, criminal investigations, and an increasing number of competitors have all had an impact on market confidence and reputation.
Most spectacularly one of the architects of this e-currency, developer Mike Hearn, announced his departure from the Bitcoin community early in January, calling it a ‘failure’.
Explaining his reasons online, he renounced the disruptive idea central to the Bitcoin philosophy.
“The network is on the brink of technical collapse,” he posted.
“There’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”
FinTech specialists and the ecosystem around it have been speculating about Hearn’s motives, including conspiracy theories and an accusation that the Bitcoin pioneer had a loss of nerve as the challenges mounted.
“This isn’t a technical crisis, it’s a political crisis,” Lucas Cullen, a software developer, Bitcoin expert and advocate, told TechExec.
The Bitcoin currency is created or mined from computers who compete over resolving mathematical problems. Cullen explained that while Bitcoin aims to be decentralised and democratic, the reality is that when a technical issue arises, hard decisions need to be made.
One issue is that Blockchain can only support a certain amount of transactions a second. Hearn and Gavin Andresen created a system called the Bitcoin XT to raise that limit. This led to a crisis in the community.
“What Mike Hearn has done is healthy – he’s brought a ‘people problem’ to the surface,” Cullen, who thinks the ‘death’ of the Bitcoin has been exaggerated.
In 2013, its share price was US$1,216. In the first week of January, Wired reported it was down to US$434. Today it is US$392.
In October news agencies announced that Australian banks were closing 13 of 17 Bitcoin exchange accounts. According to sources in the sector Australia was worth 7% of Bitcoin’s US$3.5 billion value.
Meanwhile JP Morgan’s Chief Executive Officer, Jamie Dimon, slammed the idea that Bitcoin could be a meaningful threat to banks at the Fortune Global Forum late last year.
Dimon said that an unregulated cryptocurrency was a waste of time and would never happen.
He said that JP Morgan had US$2.39 trillion in assets and has moved $6 billion a day, while Bitcoin does $2-3 billion a day.
The blockchain, however, was a different story. Dimon said they would be using it if the technology proved cheap, secure, effective, and it worked.
Last week the Australian Taxation Office and the Australian Federal Police announced they were involved in an international criminal investigation into the dealings of Craig Wright, who is thought to be the inventor of Bitcoin.
Competitors using similar models to Bitcoin continue to arise. In the last four years, there has been Litecoin, Dogecoin, Feathercoin, Worldcoin, Peercoin, Namecoin, and Freicoin.
Now there is Zcash, a corporate enterprise that utilizes an new system of investment incentives called the “Founders Reward”. Created by Zooko Wilcox, it claims to be the first crypto currency that has selective privacy features and offer the user complete control.
Transactions will still be published on the public ledger online – via the blockchain.
Cullen is sceptical that Bitcoin will be disrupted by Zcash.
“I don’t care what it says on ‘the tin’ (referring to Wilcox’s claims) if it’s digital it will leave a trail,” he said. “Anonymity is not a good selling point… and if you want to stay anonymous, why not use cash?”
“We’ve seen this ‘movie’ before (the glossy startup that innovates the innovators),” Cullen went on “…but do they have the team? the funding? It’s really all about the execution.”
On the other side of the coin, Zcash’s Wilcox has managed to attract a strong pedigree of backers for his venture with investors who have also been behind Uber, Twitter, the Bitcoin startups Blockchain.info, and Bitpay.