Happy 15th Birthday, Bitcoin!

On January 3, 2009, the first BTC was mined in what is known as the Genesis Block, or Block #0. It is the only block to not be linked to a previous one, and was generated by the Bitcoin protocol itself. It has no transaction output, but did “create” 50 new bitcoins as the miner reward, but unlike with subsequent blocks, these were not spendable.

Another unique feature of the Genesis Block is a message embedded by Bitcoin creator Satoshi, referencing a headline from the front page of that day’s The Times newspaper:

“The Times 03/Jan/ 2009 Chancellor on the brink of second bailout for banks.”

Many observers assume from this insertion that Bitcoin was created as a reaction to the global financial crisis of 2008. Not so – Satoshi had been working on Bitcoin for at least a couple of years. The financial crisis was not a trigger for the creation of Bitcoin, it was more a vindication of the need for a decentralized, hard cap store of value.

How has that vindication fared over the past 15 years?

Obviously, the price and trading volume are in a different universe now, as is the evolution of Bitcoin’s utility. While Satoshi is no longer around to clarify what he intended Bitcoin to be, early writings and the White Paper suggest that he saw it as a decentralized and private version of digital cash, as well as a potential store of value. Would he have approved of its use for storing data and NFTs? Of the emergence of smart contract capability? Of the emergence of layer-2 scaling solutions, or the development of volume-enhancing rollups?

While so much is unknown about Satoshi, I am certain that he would have been very disappointed to see that money printing continues to kick the can down the road on any fix to the circular fragility of debt-based systems. Arguably, we have barely begun to scratch the surface of the deep impact of money printing in the US and elsewhere, but already BTC has shown itself to be a strong store of value in USD but especially in Argentinian peso, Turkish lira, Lebanese pound and Egyptian pound terms, to pick just a few international currency examples.

Meanwhile, the longer-term accumulation of BTC has continued to grow even during the harsh 2022 winter.

This is a strong sign of conviction, and is potentially good for the BTC price as it reduces the amount of readily available tokens to meet an increase in demand. However, the sock-it-away approach is not necessarily good for the network longer-term as it implies lower overall transaction fees – this will be increasingly significant as the amount of BTC awarded as a reward for processing blocks is halved every four years.

This is why innovation on Bitcoin matters, and why the likely 2024 acceleration of 2023 developments is bullish for the ecosystem now and in the future.

The past year has seen:

• the emergence of Ordinals, which has encouraged marketplaces for Bitcoin-based NFTs and exploration of the potential for data storage.
• the work being done on Bitcoin layer-2s such as Lightning, Rootstock and Stacks.
• the combination of Lightning payments and Bitcoin-based social interactions via platforms such as Nostr.
• the expansion of games that earn bitcoin
• the development of smart contract layers such as RGB
• the emergence of new wallet architectures that support new types of custody solutions, such as Revault
• new types of insurance solutions, such as AnchorWatch
• the potential for Bitcoin to become a multi-asset network via Taproot Assets

… and probably some new developments I’m still unaware of. I don’t pretend to understand all of the above (yet), but the rapid expansion of the Bitcoin ecosystem beyond the involvement of legacy finance and new types of investors is something I’ll be keeping a closer eye on this year.

(I wrote about this and more in today's Crypto is Macro Now)