On the 30th Of December 2008, I was fired from my job at a major American investment bank, joining the growing flock of operations and support employees who were laid off in the wake of the Global Financial Crisis. Most of us late-20s workers, had received the short end of the stick twice in a decade. The job market we entered circa 2003 was the smoking ruin of Dotcom Exuberance, and many of us took a good five years to reach some level of professional and financial stability until the Global Financial Crisis set us back. Over the next few months, I spent many evenings on Skype conferences (remember those?) with industry peers who had been laid off in Hong Kong, London, and New York. We seethed in rage as the Troubled Asset Relief Program (“TARP”) propped up bad banks and paid for record breaking bonuses to the traders, Managing Directors, and Partners who had created the crisis in the first place.

Shortly afterwards, a friend who entered the banking sector in Singapore told me about this new global currency – Bitcoin. I read the ‘whitepaper’ in 2010 – it was a great theory – a peer-to-peer payment system based on a currency that anybody could ‘mine’. In fact, for a while I was able to run a node on my AMD desktop. The key was that global commercial transactions could be completed without the involvement of an intermediary such as the banks that were at the centre of the Global Financial Crisis.

Satoshi Nakamoto’s White Paper titled “Bitcoin: A Peer to Peer Electronic Cash System” spoke specifically of addressing the problem of “double spending” in peer to peer systems. It did not mention any political or economic motivations. However, due to its timing, Bitcoin came to be seen as a way to bypass arguably corrupt financial systems with a “for the people, by the people” medium. Crypto Anarchists and digital theorists sang paeans to Blockchain. Bitcoin was to be the great leveller – saving people from corrupt financial institutions, making geographical boundaries irrelevant, circumventing capital controls in struggling states in Asia, South America, and Africa, finally delivering universal financial inclusion, and so forth.

The first people to truly appreciate the potential of the Bitcoin idea were criminals. In 2011, a programmer who went by the pseudonym Dead Pirate Roberts created Silk Road – an online marketplace on the Tor Network that became a sort of Ebay for criminals. Guns, psychedelics, even criminal services such as contract killing were paid for in Bitcoin. When Silk Road was taken down in 2013 in a high profile raid by the US Drug Enforcement Agency (“DEA”) Bitcoin burst on to the public stage. Since then, the price swings in Bitcoin spawned a class of “digital assets” based on blockchain technology. Bitcoin itself, by virtue of its scarcity, is termed “digital gold”. 

But, Bitcoin is Dead.

The Bitcoin blockchain, as described in the White Paper by Satoshi Nakamoto, may be a great experiment, but it suffers from fundamental flaws that preclude acceptance.

First – Bitcoin will never be a currency. With settlement times still at about 10 minutes and a daily volume of about 600,000 transactions on the date of writing, Bitcoin will never be able to compete with the likes of payment networks such as Visa or the Indian government’s Unified Payment Interface (“UPI”). According to government data, UPI settled an average of 368 million transactions per day in October 2023. According to company financials, Visa settled an average of 526 million transactions per day in 2022. In its current form, Bitcoin will not be able to come within 0.01% of these combined numbers. 

Bitcoin is no longer decentralized, as most of the mining today is controlled by large mining pools running custom built supercomputers. Back in the day, it was possible to mine on a video card with 2 GB memory. That era died around 2012. Even the current distribution of Bitcoin shows that most of the coins are held by “HODLer” whales and are not evenly distributed.

Bitcoin is now a tool for speculation. Bitcoin is defined in the white paper as “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” However, circa 2016 we saw the emergence of the insufferable Cryptobros with catchphrases such as “to the moon” and “HODL!”. These somewhat dim-witted speculators know nothing about consensus mechanisms, Elliptic Curve cryptography, hash rates, transaction costs or other technicalities of Blockchain, but built Lamborghinis in the air. Subsequently, a new crop of intermediaries came up with the term “crypto-asset” that was applied to Bitcoin, Ether, and other such tokens that were based on Bitcoin’s  Blockchain technology. These intermediaries – as corrupt as traditional financial institutions, and utterly unfettered by a market regulator, created a bubble in “crypto assets” using tactics that would qualify as securities fraud under the US Securities  Act of 1934. This is a market that should never have existed, and just goes to show how technology entrepreneurs tend towards rentseeking models even when faced with a potentially transformational technology. Even here in India, almost the entire discourse in Crypto has been about speculation – nary a voice about building on the blockchain.

The timing is terrible. Though the first use case of Bitcoin was as a mode of payment for illegal services, there are real world use cases around us. For instance, Bitcoin was for a period used as a currency in Venezula when capital controls and an absurd dollar rate were imposed by the government. Despite the wild swings in Bitcoin prices between 2016 and 2020, Bitcoin was used for remittances and micropayments as a hedge against hyperinflation. El Salvador and the Central African Republic, both structurally weak economies, declared Bitcoin as legal tender, liberating themselves from the corrupt cartel of foreign exchange clearing banks. With increasing geopolitical instability, and more countries taking an insular approach to governance, now, more than ever we need the peer to peer payment system that Bitcoin promised.