Of the many noteworthy developments in the growing Bitcoin-inspired ecosystem in 2021, I have selected four that take top spots for their significance. The China ban, adoption of Bitcoin by El Salvador as legal tender, non-fungible tokens (NFTs), and the persistent threat of cyber criminals rank at the top of my list of takeaways for 2021.
China Bitcoin mining ban
Bitcoin succeeded as a public domain digital currency where prior endeavours failed, in large part because its creator was aware of the shortcomings that brought about the demise of earlier attempts. One such shortcoming was the existential threat that unfriendly states posed to the survival of a stateless digital currency project. By decree, a state is capable of effectively folding the operations of a centralized public domain digital currency. However, when China officially banned the mining of Bitcoin in May of 2021, the monumental shock was swiftly absorbed by a resilient decentralized network.
Prior to the ban, China was home to over 50% of the computing power (hashrate) behind the Bitcoin network. When the prohibition was declared, the network hashrate dropped by over 50% as mining capacity fled China. But then something remarkable happened. With fewer miners on the network to share in mining rewards and transaction fees, outstanding miners experienced a surge in profits. Hashrate recovered in short order as miners who exited China found refuge in friendlier pastures – most notably in the US, Russia and Canada. In one fell swoop, Bitcoin mining also made a shift to green energy as some of the coal-generated mining in China transitioned to renewable energy in other parts of the world. Bitcoin’s performance in this stress test exceeded expectations.
I am on a mission to spread awareness about Bitcoin and Bitcoin-inspired innovations such as decentralized finance (DeFi) and NFTs. On the anniversary of Bitcoin, January 3, 2022 1:15 PM EST, my first NFT collection “Philosophy of Satoshi Nakamoto” drops. This collection is about preserving the history and culture of Bitcoin while building knowledge and awareness about how Bitcoin works. Read more about the NFT collection on the launch page. The NFT below contains a hidden coded image that represents the architecture used by Bitcoin to encrypt and validate data. Over time I will be decoding this and all other messages in the NFT collection.
El Salvador adoption of bitcoin as legal tender
This development is a great segue from the first as it begs the question; is it possible to eradicate a public domain digital currency that has been adopted by a sovereign state as legal tender?
The adoption of Bitcoin by El Salvador as legal tender was a phenomenon that I could not have imagined in my wildest dreams. Yet here we are. True to form of many who research and invest long-term in Bitcoin, El Salvador has been increasing their holdings over time through the purchase of bitcoin when the price dips. The state has also committed to the Bitcoin infrastructure by establishing a state-run mining operation powered by renewable geothermal energy generated by volcanoes. This is an experiment definitely worth keeping an eye on.
Rise of the NFT
In October 2021, Facebook rebranded as Meta. Mark Zuckerberg underscored the remarkable opportunity of transporting users into an immersive online experience – the metaverse – and the company’s vision of being a market leader in the space. The concept of a metaverse, which engenders blurring of physical, augmented and virtual worlds still remain somewhat elusive as it continues to take form. However, the social media giant has indelibly staked its future on the idea which it believes will be the dominant computing platform in the years ahead.
At the same time, Web 3.0 has ushered in the great content ownership migration. Whereas, Web 2.0 centralized content ownership into the hands of few controlling entities, Web 3.0 empower individuals to own, control and realize profits from the content they create whether it be art, music, or literary works.
So what does all of this have to do with NFTs? In the metaverse, content will be owned by content creators. Content will be bought, sold, leased, collected, donated, put on display in virtual museums and art galleries – they will adorn walls in virtual private spaces. And they will be inextricably linked to the creators who, thanks to blockchain technology and smart contracts, finally have a more inclusive playing field to realize the benefits of having control over their own creations.
In a public display of NFT endorsement, on August 18, 2021, Visa purchased an NFT, known as CryptoPunk 7610, for about $150,000. In a statement the company expressed a desire to support NFT creators, collectors, and NFT commerce.
Cyber crime in the cryptoverse
Cyber criminals have firmly established themselves in the cryptoverse and they have no intention of leaving any time soon because it is highly profitable for them. They are organized, convincing, and they will steal all of your money if you give them a chance. Cyber criminals have long been a threat to our personal finance and personal information, and now they pose an increasing threat to our engagements with cryptocurrency. It is important for crypto users to gain a basic understanding and resist the urge to jump in and make uninformed decisions about how to participate in this novel ecosystem.
Many of us are aware of the big headlines about cyber criminals making off with millions of dollars in ransomware payments, often made in bitcoin. We also read of spectacular hacks such as the $600 million attack of the DeFi platform Poly Network. What receives less headlines; however, are stories about individuals who lose substantial wealth to cyber criminals out of sheer ignorance about how crypto works. The problem was driven close to home for me as the holiday season drew near. An old friend connected with me through social media and informed me that they had suffered a $2 million loss in bitcoin to a cyber criminal. The individual was new to the crypto space and they made inquiries online about getting help. A cyber criminal, posing as customer support for a platform, offered to help. What followed was a series of transactions to purchase bitcoin and send them to a digital wallet address controlled by the cyber criminal. The user believed that they were sending their bitcoin to an exchange platform for trading.
It is hard to overstate the ingenuity of cyber criminals. They successfully take advantage of otherwise intelligent people who are simply not knowledgeable about the cryptocurrency space but want to get in on the action. About two years ago I became aware of another group of criminal actors that posed as customer service for a wide array of cryptocurrency platforms – all using a common telephone number. Most cryptocurrency platforms do not offer telephone support and this should have been a red flag; however, the person who brought it to my attention was unaware and fell victim to a scam that cost them over $100,000. This individual was fed up with waiting 48 hours for a customer service email reply and decided to search for the company’s non-existent customer service telephone number online.
A healthy relationship with cryptocurrency begins with resisting the urge to jump in before understanding what one is getting into. For example, wallets and private encryption keys play crucial roles in the transfer, custody and control of cryptocurrencies. They can be explained in easy digestible terms. Taking the time to understand the new exciting world of Bitcoin and Bitcoin-inspired innovations can contribute to more pleasant experiences.
A final remark about what I would like to see on my list of noteworthy developments in the not too distant future. Thus far Bitcoin and its offspring continue to disproportionately benefit privileged individuals. I remain hopeful that crypto advancements in financial inclusion will soon make this list.
Disclaimer: Nothing in this blog post should be construed as advice. This content is being provided as information only. Readers should conduct their own research to inform their decisions about engaging in the crypto space.
Disclosure: I own bitcoin and I am an NFT content creator and owner.
Jeff Bryan, MA, BA, CBP, CFE