BLOCKEDCHAIN

How bitcoin was brought down by its own potential—and the banks

Wouldn’t it be so much easier if they just looked like this?
Wouldn’t it be so much easier if they just looked like this?
Image: Reuters/Benoit Tessier
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The best that can be said about bitcoin right now is that it still exists.

Split by internal divisions while its most useful aspects are harvested by the very financial behemoths it once hoped to destroy, bitcoin is fast becoming the tech world’s version of Waiting for Godot, wherein a hermetically sealed community squabbles and bickers over arcane points of code and law as their world slowly crumbles around them. In the last 12 months, attempts made to produce a road map for the cryptocurrency’s future have come to naught, all while core developers abandon the project and opaque Chinese mining concerns wield outlandish power.

Welcome to today’s bitcoin—a phenomenon so internally focused that its advocates have barely noticed the battle has already been lost.

Back at its inception, the conversation around the currency was driven by an almost unconscionable optimism. This wasn’t simply a mechanism for the easy transfer of capital: This was a tool by which the entire international financial system could be made anew, with corrupt central banks, inflationary currencies, and immoral stockbrokers consigned to the dustbin of history. In a world still reeling from the chaos of the global financial crisis, bitcoin seemed less like a currency and more like a way of future-proofing the global economy from ever having to deal with something so awful again.

The bitcoin boom of late 2013 brought greater mainstream attention to the cryptocurrency. Bitcoin’s value surged from $200 to $1,200 over the space of a few weeks, temporarily rendering it more valuable than gold. This was to be a short-lived state of affairs, however, as a string of scandals, hacks, exchange collapses, and—dare I say it—common sense brought the price of bitcoin plummeting back to Earth. Cue three years of stagnation and false promise, as bitcoin has struggled to prove its use for, well … anything, really. Even after all this time, bitcoin is still an economy driven almost entirely by potential—by the dream that, one day soon, bitcoin will become the lingua franca of the global economic order.

But bitcoin’s spike and crash did have one unintended effect: It shone a bright light on a delicate, still-evolving financial ecosystem and shouted to the world, “There’s gold in them thar hills!” While the currency itself struggled to rediscover the magic of that first almighty explosion in 2013, the circling sharks of international finance spotted opportunity. Soon bitcoin seemed primarily valuable for its blockchain, the distributed, unalterable public ledger that allows it to operate without trusted intermediaries. If bitcoin is the power grid, blockchain is the electricity giving it life. But electricity doesn’t need to be bound to a particular power grid—you can find ways to create your own.

At least in the early days, the shift seemed largely semantic; a question of emphasis. But as time wore on, the discussion surrounding bitcoin increasingly became focused on how banks, governments, and financial systems could create or use their own blockchains, of which bitcoin would be, at best, an incidental part.

Soon, Nasdaq, the world’s second-largest stock exchange, had declared 2015 to be the “year of the blockchain.” They even created their very own blockchain-enabled trading platform, Nasdaq Linq. The momentum has continued to build: A company called R3CEV is working with a consortium of 45 of the world’s most powerful banks and investment firms to create a modified blockchain that would allow companies to pick and choose what information they actually decentralize and what they keep held tight. Meanwhile, the Linux Foundation has joined forces with a who’s-who of the tech and business worlds to create the Hyperledger Project, an open-source attempt to find new use cases for blockchain technology. Goldman Sachs has even patented its very own cryptocurrency, SETLcoin, to permit the instantaneous execution of trades on the stock market.

One thing that links all of these projects? None of them use the word bitcoin.

For these financial behemoths, the appeal of the blockchain is obvious. Companies spend an inordinate amount of money on the intermediaries that facilitate the flow of capital between markets. Blockchain technology offers the possibility of those issues being delegated to a few lines of immutable computer code that, by their very nature, guarantee the legitimacy of the transaction. Vast swathes of complex transnational banking and investment apparatus could be rendered obsolete in a few comparatively minor technological adjustments.

Bitcoin may be the platform on which this coming blockchain boom operates, or it may not. I imagine this will depend on some purely economic calculations being done by unfathomably vast and powerful financial institutions. In comparison to the almost $5 trillion traded on the international currency markets each and every day, bitcoin’s $10 billion market cap is next best thing to a rounding error. It could vanish entirely and only a small cadre of true believers (and high-end drug dealers) would even mark its passing.

What does seem certain is that the revolution heralded by bitcoin now looks more likely to be transactional rather than transformational. Don’t get me wrong: I think bitcoin is a fundamentally useful thing. Its myriad advantages over fiat currency would seem to demand its widespread adoption. But at a basic level, bitcoin is trying to disrupt money. As it turns out, this may be like trying to refashion water, or the second law of thermodynamics.

And like so many technologically disrupted fields before it, the promise of great change has given way to the reality of great consolidation. Whereas we once dreamed of a flat, universal currency with an equal value for all players, irrespective of size, now we face the reality of an international financial system that’s almost entirely the same—just with a new coat of paint.

Technological innovations of all stripes have long wrestled with a tension between revolution and legitimacy, and bitcoin has perhaps felt the tension more keenly than most. To put the dilemma another way: Is bitcoin trying to replace the international economic order, or work within it? Does it want to destroy Goldman Sachs, or be bought by it? To many within the movement, this is still an active question. But as the shadows lengthen on bitcoin’s moment in the sun, it’s increasingly hard to believe in its initial promise of changing money for good.