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Abu Dhabi, UAEWednesday 16 January 2019

Bitcoin isn't quite the gold rush it once was, but cryptocurrencies are here to stay

Never mind precipitous drops in value since 2017. New and disruptive financial mechanisms will change society for ever

Cryptocurrency adoption has been been increasing in the region, with Bahrain's central bank issuing draft rules on trading in the virtual currencies on Thursday.. Reuters
Cryptocurrency adoption has been been increasing in the region, with Bahrain's central bank issuing draft rules on trading in the virtual currencies on Thursday.. Reuters

A year ago, the value of a single Bitcoin reached almost $20,000. This astonishing figure marked the peak of a feverish, several-week-long period of speculative investment.

Economists noted that the short-lived cryptocurrency boom was not without precedent, remarking on its similarities to historic events such as the Dutch tulip craze of the 1600s, the California gold rush of the 19th century and the dot.com bubble of the early 2000s.

Now, one Bitcoin is worth roughly $3,300 – a massive drop from its 2017 high. However, even that vastly reduced value is still way above the $1,000 it commanded at the start of 2017.

Basically, the doomsayers have been proved right – as have those who believe that cryptocurrencies are an inescapable fact of contemporary, networked life.

Our digital lives are, indeed, deepening. Thanks to smartphones, tablets and other rapidly advancing technologies, our day-to-day existence takes place online as much as it does in the physical world.

Bitcoin is just one aspect of this. Even while its user experience is reminiscent of the early days of dial-up, the technology that underpins it provides the best of both the transparency and the privacy that the internet can offer.

In any case, we shouldn’t judge the potential of an e-book by its cover. Until the worldwide web was created in 1989, the entire internet lacked a user-friendly interface, and now look where we are today.

Bitcoin, or at least the trading of it in 2017, also represents the worst excesses of the digital gold rush. Its rapid rise in value was driven by media conjecture, a reckless buying frenzy, the hacking of exchanges and massive, international market manipulation.

Between October and November last year, as the Bitcoin price was ramping up, I started working on a book about the rapid growth of cryptocurrencies. In the end, the New York literary agent I spoke to couldn’t be certain of the book’s commercial worth – ironically, mirroring conversations we are now having about Bitcoin – and it will remain unfinished.

Still, the nine months of research I performed, did offer some valuable insights to the broader significance of Bitcoin’s dramatic ascent.

Bitcoin’s value could – in theory – be unlimited. (Full disclosure: I have invested less than $500 in it this year, so won’t lose more than a few reasonably priced shirts, should it plummet to zero. However, I could be in for a whole new designer wardrobe if its price hits $20,000 again). But far more important than its price is how widely this technology has been embraced, even if it was only for a quick profit.

These days, technology is knitted into every aspect of our lives, from the way we consume news and stay in touch with one another, to the way we manage our finances and make investments.

The way we now view the world is also completely different to the way we did during the dot.com boom of the early 2000s. Now, humans are used to the nebulous, non-physical qualities of the digital sphere and, crucially, are able to see the monetary value of the opportunities it presents. As a result, Bitcoin, which has no physical properties – unlike tulips or gold – was able to catch the imagination of people around the world.

The timing came at another tipping point: the moment when more than half the world’s population became connected to the internet.

The arguments for and against Bitcoin and other cryptocurrencies will ultimately prove irrelevant. What matters, is that thousands of people own, have invested in, or, in a smaller number of cases, performed transactions in what amounts to little more than a digital code. This goes far beyond anything that has happened on the internet so far.

In other senses, however, the dot.com bubble bears remarkable similarities to the Bitcoin boom and bust of 2017. The most obvious of these is that fortunes were made and lost by brave investors in a little-known or understood technology. More pertinently, the 2000 collapse in share prices of companies such as Amazon, Microsoft and Apple did not kill the internet.

In fact, the breathless hype of that period helped to pave the way to the fully digitised world we now live in. Far from signalling the end of cryptocurrencies, Bitcoin’s trajectory shows that the effects of such disruptive financial mechanisms have barely even begun to be seen.

Mustafa Alrawi is an assistant editor-in-chief at The National

Updated: December 12, 2018 07:25 PM

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