Regulation will pave the way for the future of crypto

The crypto winter has made value sink drastically. But Karina Rothoff Brix, from the crypto service Firi, is certain that the crypto phenomenon will be a natural part of our trading culture and system – at least, once regulations are put in place.

To some people, crypto is the latest attempt to reinvent the fastest way we exchange money and goods. And when looking back on history, the evolution of money has always been moving towards more convenience and easier transactions. But crypto is so much more. Some even define it as the next revolution – not only for money but for the entire trading culture and system in our society.

The decline we see is, in my view, a normal part of the market cycles, which influences the perceived and traded value of crypto. But the value behind the crypto projects is increasing as innovation continues. Adoption is here – look no further than the number of ATM machines worldwide where crypto is easy to purchase, or the growing number of both private and public organisations that accept crypto as payment or as remuneration.

So, how did the industry grow from small crypto “nerd” projects to its current state, consisting of more than 13,000 different cryptos and an asset that you can pay your taxes with if you live in the state of Colorado, or purchase gas with when driving in Australia?

Several attempts before Bitcoin

We often hear that the story of crypto dates back to 2008, when the most well-known and oldest crypto of all was released with a whitepaper – Bitcoin. But there were several attempts to define e-money or digital currency before Bitcoin was invented or described.

It all began in the early days of the internet when David Chaum, in 1982, wrote a dissertation paper called Computer systems established, maintained, and trusted by mutually suspicious groups. At that time, David Chaum was a graduate student at Berkeley and his dissertation is the first known description of a blockchain protocol. His work laid the foundation for the crypto and blockchains we know today, and it was driven by his motivation to protect the privacy of individuals. A privacy that he early on feared that governments would not be able to ensure on the Internet.

David Chaum founded a company called Digicash, Inc. in 1989. His company attempted to release an e-currency called E-cash but failed and was then sold in 1995. The world was simply not ready for the technology – as the first online payment from a credit card was made in the early 1990s.

On its way

But the phenomenon was on its way. One of the first worldwide money, or digital currencies, was created in 1996. It was called E-gold and was backed by gold. The transactions were irreversible and approximately five million users were registered. But E-gold was quickly adopted by criminals who saw it as a safe haven, as regulation was lacking. Soon the currency was banned by the US government.

One of the first companies to succeed in offering a fast and paper-free transaction method using the internet was PayPal. Both PayPal and E-gold are like crypto in the sense that they use the internet to make transactions. But there’s one thing that is completely different. To simplify – cryptos are decentralised and both PayPal and E-gold transactions were controlled by a central unit.

A paper that made a difference

A milestone in the crypto story happened in 1997, when a researcher from the US National Security Agency (NSA) published a paper called How to make a mint, the cryptography of anonymous electronic cash. It described a decentralised network and payment system.

The concept described in the NSA paper was further developed by two researchers in 1998. Nick Szabo created what he called Bitgold, which introduced the concept of smart contracts to the system. Wei Dai wrote B-money, an anonymous distributed electronic cash system, which described the fundamentals of all the crypto systems we know today. Nick Szabo later helped the founders of Bitcoin code the system based on his findings, and Wei Dai’s work was also cited in the Bitcoin’s paper. Today, the smallest unit of Ethereum (ETH) is called a Wei.

A more secure system

But it wasn’t until October 2008 that Bitcoin became the first operating crypto currency, after adding blockchain technology. This was in the middle of the financial crisis, and some say that the ambition was to create a more secure and sustainable system that could not be manipulated by centralised entities. With a fixed amount of Bitcoin being produced, the mission was also to protect against inflation.

The Bitcoin vision was published by Satoshi Nakamoto, and it described a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without involvement from a financial institution. The idea was to change the protocols that the financial institutions were building on and transfer funds instantly, anonymously, and without middleman fees and governmental surveillance and control. In January 2009, the first block of the Bitcoin blockchain, called The Genesis, was made.

The first real purchase with Bitcoin was made on May 22, 2010. The pizzas purchased with it became historical because until that point, the Bitcoin did not have a value but had only been transferred between peers – and mostly for fun.

The creator disappeared

Satoshi Nakamoto was nominated for the Nobel Prize in Economics in 2015, but he disappeared shortly after making Bitcoin. No one has yet been able to identify who’s really behind the paper or who is Satoshi Nakamoto. Before disappearing, Satoshi Nakamoto chose a software engineer to oversee the building of Bitcoin’s original coin. His name is Gavin Andreson, and he later founded the non-profit organisation The Bitcoin Foundation. As with Ethereum and its honouring of Wei, the smallest part of a Bitcoin that can be sent is called a Satoshi.

In the years that followed Bitcoin’s entrance on the market, the usage spread, but not only to legitimate businesses. Once again, governments had to shut down several illegal websites. The idea that crypto is only for criminals is a sticky myth for the industry to rid itself of, and the need for more detailed regulation is growing.

With a market capital of more than USD 3 trillion at its peak in 2021, the crypto industry is becoming an asset with which our society needs to handle and interact.

Legal tender in two countries

Two countries have made Bitcoin their legal tender. In El Salvador, Bitcoin has been the national currency since September 2021, along with the US dollar. Every citizen in El Salvador has a digital wallet with BTC in it, and it is mandatory for all merchants to accept BTC as payment.

The small African country of Central African Republic also voted BTC as their legal tender in late summer 2022, along with the franc issued by the French government. Many among the population, primarily in African states, are “unbanked”, and crypto payments give them access to trades and the basic service of securing their money and receiving payments for goods.

Close to 90 other countries are in the process of deciding the role of cryptos in their jurisdiction.

Regulation in place 2024

Retail crypto investors are also increasing in numbers. In 2021, 8% of American households had invested in crypto; in the Nordics it was between 11 and 15%. The growth is expected to increase with global adoption, along with the EU crypto regulation that is expected to be in place in 2024. With this regulation,
institutional money is expected to be a significant part of the growth for the crypto industry going forward.

Another powerful driver for adoption is Web3 – the next generation of internet. Web3 is expected to be largely built on blockchains, meaning crypto would have an essential role as a digital asset – not only for transaction of payments. In essence, Web3 provides all industries with new virtual markets where the technologies enable people to interact and transfer ownership in virtual settings, seamlessly and conveniently.

The pure digital presence, the virtual interaction, and the gaming habits of younger generations in Western countries show us how owning digital items and being part of virtual events is perceived to be just as real and as valuable for this generation as experiences and assets in the physical world.

This, combined with technology, talent attraction and funding in this space, lays the groundwork for the innovative and disruptive businesses of the future.