The cryptocurrency industry was, for many years, characterised by an almost messianic libertarian streak. Cryptography was supposed to make trust obsolete, eliminating the need for (and control exercised by) centralised administrators like central banks and governments.
Satoshi Nakamoto, the shadowy figure responsible for the development of Bitcoin (the first cryptocurrency), is still viewed by a certain section of the community as a quasi-godlike entity.
When Bitcoin underwent its latest hard fork — a software alteration adopted by a section of the community, resulting in two separate cryptocurrencies — the new version, Bitcoin Cash, touted itself as fulfilling “Satoshi’s original vision”.
Craig Wright, the man widely suspected to be behind the Satoshi persona, endorsed Bitcoin Cash in these terms, but a large segment of the Bitcoin community dubbed this a lie and attacked both Wright and Bitcoin Cash vociferously.
It all seems a little emotionally charged for arguments about a payment processing system, but a certain sub-group of internet denizens believe that the inflationary tactics of central banks are tantamount to robbery and that a currency built on a distributed ledger, free from external control, is the only solution.
The belief was that a distributed ledger currency could exist outside the reach of regulators. The cyberspace maxim became “the code is law”. It is on these high, if somewhat anarchic, ideals that the cryptocurrency world, now valued at around $150bn, began.
It was, of course, never viable. The painfully frequent scams and digital robberies caused many to appeal to law enforcement agencies, abandoning any pretence that code was an acceptable substitute for the law.
Bitcoin, the supposed champion of decentralisation, is now largely mined by a handful of server farms in China, where cheap hydropower meets their astonishing electricity requirements. Globally, Bitcoin mining uses around the same amount of electricity as Cuba.
And, as the popularity of cryptocurrency grew and it slowly began to move out of its role as the dark web’s supposedly untraceable currency, its importance as a financial instrument grew too. Cryptocurrency launches have provided more capital for start-ups than venture capitalists in 2017 (perhaps because VCs tend to be a little more particular).
As the number of start-ups launching their own cryptocurrencies expanded and the pool of investors swelled beyond the sweaty internet-dwellers to include everyone from hedge funds and regular Joes, it was inevitable that regulators would take notice.
And take notice they did. The SEC began the flood at the end of July, publishing a report that deemed the tokens issued by a doomed blockchain investment fund called the Decentralised Autonomous Organisation were securities. All of a sudden, it became rather unclear why anyone thought that running a currency on a blockchain would make it unregulatable.
Since then, a succession of regulators around the globe has chimed in agreeing with the SEC’s assessment. China went a step further, banning initial coin offerings outright. The development hammered cryptocurrencies’ values and, though these have now stabilised, it is a taste of the sort of devastation regulators can wreak on a market unprepared for their arrival.
The market will adapt to a regulated environment. It will be forced to. It may even, at some stage, produce some of the disruption it originally promised.
But the secret’s out. The technology is now in the hands of the big players — the banks, the regulators and the governments — and they are scrambling to apply it to their business models, tacking blockchain on to any application they can think of.
Whatever changes the technology does bring, it will not change the shape of the financial world. Honestly, it never stood a chance.
Perhaps acknowledging that, along with the fact that central administrators bring real benefits, will open the door for a more mature market that provides capital to worthy enterprises and provides genuine improvements to the way markets operate.