To judge by its price, Bitcoin had a banner year in 2017. The leading cryptocurrency rose 1,200 percent against the dollar, making millionaires of many geek investors and billionaires of a few. But at one point, Bitcoin was up 1,800 percent. It dropped from the highest heights by year’s end, making some of the less disciplined Bitcoin investors feel sad about their poor fortunes.
The price action may be an allegory for Bitcoin’s wonderful, awful year. Because while recognition of the technology grew by leaps and bounds, the chance that Bitcoin will reach its full potential seemed to move further into the distance.
The rules by which the Bitcoin software works were hotly disputed in 2017. The leading development group maintains the software to limit the size of blocks going into Bitcoin’s blockchain, and thus transaction throughput. That protects the network from the threat of censorship, while raising the price of including transactions in the blockchain. Dissenters from that approach, among them many Bitcoin service providers, see strength (and wealth) in numbers. They want larger blocks so that more people can use Bitcoin.
That debate stole energy from the various efforts that could help Bitcoin improve global financial inclusion, restore financial privacy, increase liberty, and provide all the world’s people a stable, reliable money supply. As I wrote in a year-end piece for CoinDesk, the Bitcoin world is woefully short on “social capital.” That’s everything else around a business, technology or product: knowledge of it, adoption of it, supportive customs and laws, integration into existing human institutions, and so on. It was necessary at one time to construct social capital around bananas.
Will Bitcoin’s social capital grow to justify the current high price? I believe it will. The question is how much time that takes. Price is a reflection of value, and Bitcoin will be valuable when it can do more of the things that are in its origin story: global financial inclusion, financial privacy, liberty, and a global, stable money supply.
If Bitcoin fails at these things, there are literally thousands of competing cryptocurrencies that may step in, including competitors for the Bitcoin name. There is sure to be an endless array of cryptographic financial vehicles that debut bold new business models and sectors, producing their own wonderful, awful progress and risk. Stay tuned in 2018 for the latest developments in Bitcoin and cryptocurrency. The competition among them to outcompete traditional monetary instruments is wonderful (and awful) to behold.