Bitcoin at 10

MCF Intersection

A regular snapshot of the trends, news and research in the world of philanthropy — and its impact on business.


It has been a decade since the digital currency bitcoin was born, and in that time it has become a source of fascination for investors, speculators, true believers and skeptics around the world. What it hasn’t become, though, is the one thing it was built to be: a payments system.

Bitcoin’s roots go to Oct. 31, 2008, when a person or group using the pseudonym Satoshi Nakamoto released a nine-page white paper describing a “peer-to-peer electronic cash system.” The paper outlined a way for consumers to pay each other on a digital platform that mimicked cash transactions—but without the need for the government backing required for traditional currencies.

After a few years as mainly a techie project, it broke into the mainstream around 2013. Stories of overnight fortunes were matched by stories of drug traffickers and Ponzi schemers. Tools for using it were clunky, but the system did work. And with bitcoin trading under $200, a lot of people started experimenting.

At the time, bitcoin looked like it had a promising path to broad acceptance. Dell Technologies Inc. and Microsoft Corp. began accepting bitcoin in their online stores, as did Inc. Expedia Group Inc. started accepting it for hotel bookings.

“I felt like we were on the path to inevitability,” said Derek Magill, who created a website dedicated to the writings of Nakamoto.

Soon, though, the trend hit a wall.

Bitcoin Beach

MCF Intersection

A regular snapshot of the trends, news and research in the world of philanthropy — and its impact on business.


Jeff Klee, chief executive of online ticket-booking service CheapAir that started accepting bitcoin in 2013, said that to this day he is fond of it. Bitcoin customers, he said, are more loyal, adding that it is cheaper for him to process bitcoin payments than credit-card payments, as merchants pay a fee to card companies whenever customers pay via card.

Bitcoin, though, remains a small part of the company’s business. For most consumers, the benefits of bitcoin are outweighed by the perks that come with credit cards, like loyalty points or miles, he said.

“Apart from the group who are passionate about it for ideological reasons,” Mr. Klee said, “it hasn’t caught on.”

A protracted fight among developers contributed to short-circuiting bitcoin’s payments growth. The bitcoin network was built in a way that it could process only about seven transactions per second, a technical limitation inserted by Nakamoto. If that limit was hit, users could pay a voluntary fee to essentially skip the line for their transaction.

Nakamoto stopped writing publicly under that name in 2010 with the limit in place. Lead developers such Gavin Andresen and Mike Hearn argued for changing bitcoin’s code to increase the limit but found firm opposition to the idea. Without Nakamoto’s moral authority, neither side would budge. Both men reluctantly abandoned their roles, with Mr. Hearn calling bitcoin a “failed experiment.”

Then bitcoin’s price went on a manic rally in 2017, soaring from under $1,000 to nearly $20,000 and attracting a whole new crowd of novice investors. Surging traffic on the network led to widespread bottlenecks, with the fees rising as high as $54 per transaction in late 2017. At that level, bitcoin was useless for small purchases, and the rising price just encouraged hoarders.

The fees have since come down, to under 50 cents, amid bitcoin’s 70% price crash from its December 2017 peak, but the incident severely damaged bitcoin’s popularity as a payments system.

Dell dropped bitcoin in 2017. Expedia dropped it in May 2018. CheapAir still accepts it, but bitcoin sales on the site are stuck in the low single digits, Mr. Klee said.

Bitcoin’s backers are now touting it not as a payments network but as a store of value and a place to park assets. Most of the regulated crypto-exchange businesses, such as Gemini Trust Co., Coinbase Inc. and Circle Internet Financial Ltd., are courting institutional investors. Money manager Fidelity Investments Inc. is preparing to build a trading desk for hedge funds and other professional investors.

“It’s a millennial’s version of a Swiss bank account, for every person in the world,” said Meltem Demirors, the chief strategy officer at crypto-investment services firm CoinShares.

But that could be a hard sell, especially for non-millennials.

Bitcoin doesn’t currently have most of the elements of a traditional store of value, said Michael Minter, a financial adviser at Minter Financial in Tampa, Fla. Its price is volatile, and determining its underlying value is difficult. Mr. Minter doesn’t buy it on behalf of clients, given the risk of violating securities laws.

“Is it worth $6,000?” Mr. Minter asked. “I don’t know. I don’t think anyone does.” Bitcoin was trading at about $6,300 this week.


MCF Intersection

A regular snapshot of the trends, news and research in the world of philanthropy — and its impact on business.


Meanwhile, there are more than 2,000 so-called altcoins trying to be the next bitcoin, and the underlying technology, popularly called the “blockchain,” is being applied to fields as varied as supply-chain management, capital-markets trading and voting. Most applications, though, are still just experiments.

“I know this is a sound bite,” said Jeff Garzik, an early bitcoin developer and CEO of blockchain-services company Bloq, “but it really is still the early days.”