Bitcoin and Blockchain – Bubble, Bubble Toil and Trouble

Can Bitcoin and Blockchain be compared with the misquoted line from Shakespeare's play Macbeth, "Bubble, Bubble Toil and Trouble?"

Unfortunately, Shakespeare never published his play Macbeth with the line "Bubble, Bubble Toil and Trouble" in it.  Instead, he published "Double, double toil and trouble, Fire burn, and cauldron bubble", recited in unison by three witches pondering the fate of Macbeth in Act 4, Scene 1.

Is this oft-misquoted line from Shakespeare well suited to the current over-inflated and breathless puffery surrounding Bitcoin and Blockchain?

Let's look further at both.

One of these (Bitcoin) is cited as the first coming of digital currency, the other (Blockchain) is routinely cited as the disruption agent de jure of just-about-everything.

  • Is Shakespeare's use of the Witches incantations relevant to Bitcoin and blockchain today?
  • Are we living in a new age of Tulip-mania dressed up in digital concept garb?
  • Does the current market hype and craze surrounding Bitcoin and Blockchain have legs to them?
  • When can we really expect Bitcoin to stabilize and Blockchain to become real?

Read on for unseen insight.

Bitcoin, speculation, bad actors and domestication

Not being a fiat currency (legal tender for commercial purposes), Bitcoin has attracted its share of illegal and extra-legal uses as well as speculation on the part of gamblers hoping to buy low and sell high.

Don't get me wrong, I think the ideas behind Bitcoin are really interesting and its architecture elegant.

Its digital electronic networks store and trade on the notion of value (the perception of value) without using an intermediary to record transactions between sellers and buyers. I won't delve into all the detail regarding its services, mining requirements, hash functions, exchanges and other facets that power its electronic trading platforms: there are plenty of resources on the Web that cover it already (Wikipedia may be a good introduction for newbies).

Starting life at the equivalent of six cents per bitcoin, the price of one bitcoin has climbed and fallen significantly, as with most speculative trading.

  • The price of one Bitcoin hit a peak of almost $980 at the end of 2013
  • Its price fell back down to price levels between $200 and $500 for almost two years through 2016
  • By mid-2017 the price of one Bitcoin started climbing to a peak of almost $18,000 at the end of 2017
  • Since then the price of one Bitcoin reversed course and now trades at about $6,500

At current price levels, the market cap for Bitcoin is almost $110 billion (yes, that's billion dollars).

Figure 1: Bitcoin prices: July 2010 to June 2018

 

 

Source: Wellington Research, 2108

Traders and speculators prognosticate the price of a Bitcoin will dance up and down, between $2,000 and $20,000, between now and the end of 2018.

If the estimates are correct - then one could lose 70 percent or gain as much as 200 percent from current prices.

What's interesting about Bitcoin is its speculative nature: it is currently the paradise of gamblers, as well as the province of extra-legal economic activity and authoritarian nation State actors.

  • If you are able to buy low and sell high, more power to you
  • Its lack of a trusted authority cuts both ways
  • As for fiat uses, it will have to await the appearance of the tax-man

The bubble, bubble toil and trouble of Bitcoin is due to its extra-legal status. Unless and until it emerges from this state it will remain mistrusted, volatile and speculative.

Insights about Bitcoin

When will the taxman come for Bitcoin?

Not before its exchanges are regulated and taxed and its actors known, nor until financial intermediaries can make money from it, and certainly not until Nation States determine it is a ready source of debt-financing.

This may take 15 years from its outset, and maybe more than twenty: so the early line is the domestication of Bitcoin does not occur until 2024 at the earliest and maybe 2030 at the latest.

Until then, happy speculating - and extra-legal activities - if you are so inclined.

Blockchain, hyper-mania and mainstream uses

Did you know the world's first Babies Born on Blockchain were recently birthed in the Netherlands. Yes, you can read all about this in-your-face and over-the-top Blockchain story at the Bengali Daily and the Netherlands Times among other venues.

The hype surrounding blockchain has become so loud and insistent that for most of us it is becoming far easier to simply turn-it-off and ignore the hype.

If you are not being pressured by the suits - who don't understand it anyway - to investigate and deliver proof of concept trials so that your company does not fall behind the Jones's, it is easier to turn off the hype machine.

If you are being hyped, cajoled and targeted by digital business ambulance chasing advisory consulting companies eager to sell more futures and consulting time, and anyone else trying to make a buck off of aspirations, then all bets are off: you may be knee-deep into the muck of exploring blockchain.

Under the covers, blockchain is a distributed database, or in the parlance of the day a a distributed ledger, a necessary but hardly earth-shattering development.

It is the applications on top of these distributed ledgers that are responsible for all the hype claims- and aspirations- of the day.

Under pressure to demonstrate competitive advantage the application trials of blockchain proofing of concepts will continue, and the network community requirements of these application-trials will grow, as new digital blockchain-based application platforms are birthed from trials that have been going on now for five years and more.

The bubble, bubble toil and trouble of blockchain is that it is only as useful to the extent its applications deliver value to a digitally connected ecosystem.

And for this there is no technology solution, blockchain applications are primarily about value chains, platforms and market positions.

And therein lay its future states.

Insights about Blockchain

Factors favoring the takeoff of any new Blockchain digital eco-platform application include:

  • Entities who do not trust one another
  • Entities looking for lower cost (OpEx and CapEx) alternatives
  • Entities looking for options and opportunities that cannot be delivered by central eco-exchanges
  • Value delivery for B2B and B2C market application chains

In the meantime, the proofing of the applications of Blockchain will be the order of the day and along the same time frame as Bitcoin: sometime between 2024 to 2030 for mainstream ecosystem uses.

Insights

Shakespeare's misquote applied to Bitcoin and Blockchain means that for now, both are quite like Bubble, bubble toil and trouble.

We are living in an age of Tulip mania - so get used to it.

The market craze about both will go up and down, and will hyperventilate and deflate until maturity sets in

Neither will become domesticated nor mainstream until between 2024 and 2030.

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