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Bitcoin has been proclaimed dead 89 times. It has been labeled a Ponzi scheme and a failed experiment. As with the web, the early days were filled with excitement, over-enthusiasm, and bubble-like behaviors, commonly referred to as the hype-cycle. On October 13, 1994, the Mosaic Netscape 0. Six years later, the world experienced the 2000 dot-com collapse, resulting in many companies completely evaporating. The idea that a company would achieve profitability was irrelevant — all investors cared about was growth.
But that greed was not inherently bad. A friend of mine has a great line. Nothing important has ever been built without irrational exuberance’. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. Due to that same speculative mania, the valuation of companies skyrocketed. The same investors who had been touting the perpetual rise in tech stock valuations were the same ones that lost billions — if not trillions — of dollars. It was greed and ignorance that resulted in the bubble.
But what came out on the other side was a framework for incredible companies to be launched. Take, for example, Facebook, which launched on February 4, 2004. Without the infrastructure that had been built during the boom and bust, would Facebook have been able to launch? How about the collection of all the world’s information from Google? With hindsight, no one doubts that the web was going to become a reality one way or the other. But at the time, when investors were shutting down funds because they had bet on one too many Pets.
And yet here we are on the web. It’s still early for bitcoin Bitcoin is seven years old and it is experiencing many problems that early technologies have experienced. In many respects, even at seven, it is still not even October 13, 1994 for the technology. Despite this, investors have thrown incredible amounts of money — perhaps too much — at the space. If you were a wallet provider, a remittance company, or a payment processor, investors would give you money. In 2014 and early 2015, starting a bitcoin company was one of the easiest ways to get funding. Truthfully, bitcoin didn’t warrant that kind of money from a rational perspective.
And yet, investors were throwing it at them primarily because of greed. And as with all technologies, there are growing pains. Early bitcoin was filled with inefficient companies and poor custodians. Gox resulted in individuals losing hundreds of millions of dollars collectively. Silk Road made people believe that bitcoin was only for drugs.
Yet bitcoin is growing and that perception is changing. Old exchanges are dead or dying. The next stage of exchanges, such as Coinbase, takes both security and regulation seriously. Millions of dollars are spent on security analysts and individuals to work with regulators. Further, the number of users on the network and the number of transactions they send are growing. Bitcoin’s existential crisis As has been covered by the New York Times and Mike Hearn, bitcoin is going through an existential crisis. But while their message is one of failure, it’s simply another growing pain for the network.
Despite the insistence from many in the bitcoin community to increase the block size, the Core development team has developed its own roadmap on how to scale bitcoin, including an implementation of Segregated Witness via a soft fork. And there’s no denying that scaling is necessary. For bitcoin to become the payment protocol for the Internet, it will need to be able to support more. Dissatisfied with the proposal put forth by the Core development team, a handful of developers have launched an alternative client for the bitcoin protocol, Bitcoin Classic. The proposal is to hard fork to a 2MB block size, which is double what the block size presently is. Further, the majority of the miners, including Bitmain, Bitfury, and BW.
The largest wallets and exchanges, including Coinbase, Xapo, and Blockchain. What’s clear is that bitcoin is experiencing an existential crisis. Can bitcoin remain decentralized and censorship-free if it scales? While there is certainly a crisis taking place, it’s not one that will result in the death of bitcoin.