Bitcoin – the initial disruptor

The very first line of the abstract of the original Bitcoin whitepaper perhaps best summarises the driving force behind the traditional cryptocurrency market in general and so many of its pioneers. in particular. In January 2009, the abstract simply described the vision for Bitcoin:

“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.”

Taking out the banks – it’s never going to happen! It’s all a naive pipedream and hot air pumped out by Libertarians who have nothing better to do… or so you might think. The alternative, often-cited view is

”Isn’t Bitcoin just used by drug dealers…?”

This is the de facto click-bait,. It is the headline-grabbing fodder that gives bankers, politicians and others the opportunity to alleviate that deep sense of guilt and denial. It provides the excuse not to have to spend the time and effort to get knee-deep in the weeds to actually understand the technology and its disruptive, and potentially destructive, power. It is easier to rely on the rebuttals and the soundbites of others. Indeed, just prior to the Congressional hearing on Facebook’s Libra project Donald Trump (or more likely his more informed staffer) tweeted:    

“I am not a fan of Bitcoin and other Cryptocurrencies…Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity…”

No additional homework required…

…but what is happening beneath the tweets and the hyperbole is far more disruptive than many in the finance industry either want to accept, or are willing to accept. This disruptive force began on January 3rd 2009.

On this date, the headline of the Times newspaper in the UK simply read:

“Chancellor on Brink of Second Bailout for Banks”

The GFC had taken its toll, the deficiencies in the banking system had reared their ugly heads, and the banking industry and governments globally were facing their economic and financial demons. Quantitative Easing had arrived and bank bailouts became de rigeur. At the exact time this headline was pumped from the printing presses, Bitcoin was released – but without any dramatic fanfare – it was just released isilently into the ether.

The release date was a testament to the problems the banking industry was experiencing. It was a permanent reminder that perhaps the banking system, as we know it, is broken and that better alternatives are only a block away. Indeed, the technology that underpins Bitcoin, the blockchain, did not disappoint, proving this in a way you might think more appropriate to Tom Clancy novel.

In the very first, permanent, block of the bitcoin blockchain, Satoshi Nakamoto, the anonymous creator of Bitcoin, embedded a hidden message. It was a message to the financial world that irreversible change was being unleashed. That hidden message was the same Times newspaper headline from above. You can view that message in the public Bitcoin blockchain, here or, alternatively, you can buy a copy of the original paper in its original cellophane packaging for a delicate  $1m. Ironically, certified original copies of the complete newspaper would have been a better investment than Bitcoin itself. The important thing to understand, however, is that this message is deeply engrained into the psyche and raison d’etre of Bitcoin and defines its culture.

The message was prophetic. It was a permanent reminder of what had been, but more importantly what was about to come. It also used a similar methodology to the all-too-familiar hostage photographs and videos we have all seen over the years – showing a permanent record of events. The question is – who or what was being held hostage?  

Given the timing of Bitcoin’s release, was it a reflection that the banking industry was being held hostage by the global governments? After all, governments globally had bailed out many banks to maintain global confidence in the banking sector deeply affected by the problems created by the industry itself.  Or was it the more philosophical, darker flipside to this digital coin that was relevant?

Bitcoin maximalists and libertarians argue that we are held hostage by the banking system and governmental control. They advocate that we need to be in control of our own funds – to have censorship-free money, if you like. The decentralised structure of bitcoin means no individual, government or company owns or controls the cryptocurrency. Bitcoins are not printed at the behest of a politician’s latest whim. Instead, they are owned by the community that chooses to hold them, and powered by miners supporting the infrastructure (if you want an easy to understand 90 second introduction to Bitcoin and the blockchain, check out this video). As a result, the belief is that power is passed back to us all individuals. We transfer funds globally, how we wish, when we wish and to whom we wish without involving a financial institution or being under governmental control. It was the ultimate disruptive vision of taking away centralised power and returning capital to the people – democratic capital if you like.

Importantly, this philosophy of financial disruption, or perhaps more appropriately , destruction, is hard baked into the DNA of Bitcoin and so many of its pioneers. The libertarian nirvana of the total removal of financial institutions and governmental control was in the whitepaper as a permanent reminder of how powerful this disruption can, and indeed will still be.

The innovators had their mission, driven by the power to change the financial world irreversibly, and they began their quest. With chests puffed up and a unified war cry, the objective was to decentralise everything.

It was the next evolutionary wave that saw disruptive innovation turn to something that was a little too close for comfort for the banks. It was this next wave that was very close to bankers’ hearts and their wallets – fundraising. It was also the wave that proved to all involved that bankers’ days could well be numbered, when $24bn was raised and Financial Institutions for the most part were not involved.

But bankers had a weapon to fight back…

In the next article we will look at the positive legacy left behind after the Initial Coin Offering (ICO) boom and bust and how bankers leveraged their entrenched positions to fight back.

Tim Lea is the CEO of Fractonium. Fractonium is developing a funding platform that turns traditional Corporate Funding on its head, by tokenising the fractional ownership of assets, revenue flows and debt and blending them together into the traditional capital stack of debt and equity. This creates new financing models and markets globally, creating new opportunities for ambitious corporates and their shareholders.