When Bitcoin broke intopublic consciousnessin 2013, it couldnt have been sexier: a digital currency being used to buy everything from drugs to cupcakes. Then the excitement shifted to an aspect of Bitcoin that is a bit less sexy: public online ledgers. Blockchain the technology used for verifying and recording transactions thats at the heart of Bitcoin is seen as having the potential to reshape the global financial system and possibly other industries. Both Bitcoin and its blockchain are gaining imitators as well as adherents, along with plenty of critics, includingJamie Dimon, the chief executive officer of JPMorgan Chase & Co. Its recentwild price surge and fall has given ammunition to both.

The price of Bitcoin rocketed in 2017 before giving up much of those gains, as the debate raged on whether the cryptocurrency whose total value neared $300 billion in early December should be considered a legitimate financial asset. It got a huge boost when Cboe Global Markets Inc., started futures trading tied to the digital currency and CME Group Inc. andNasdaqInc., said they would follow suit. Futures trading will push Bitcoin closer to the mainstream by making it easier to trade without the hassles of owning it directly. Bitcoin began to look almost traditional compared with the new cryptocurrencies that raised more than $3.5 billion throughinitial coin offerings. Theirexplosive growth drew warnings from regulators around the globe even beforehackers stole almost $500 million worth of a digital token called NEM from a Japanese cryptocurrency exchange. The Bitcoin community came together (mostly) in November to reject a proposed software change that had threatened a split. Meanwhile, more than 100 banks are working within theR3 consortium,created to find ways to use blockchain as a decentralized ledger to track money transfers and other transactions. Australia's stock exchange plans to start using blockchain to process equity transactions.Blockchain is also being tested by retailers like Wal-Mart Stores Inc. forensuring foodsafety, as industries explore what advantages the technology might hold over traditional databases.

Virtual currencies arent new online fantasy games have long used them but the development of a secure digital currency without a central issuer rightly turned heads. Mysterious spikes and drops in the price of Bitcoin since its birth helped build an early reputation for the currency as a tool for selling drugs and laundering money. Its history also featured arrests for Ponzi schemes. Theperson or peoplewho created the Bitcoin system under the pseudonym Satoshi Nakamoto solved a problem central to any currency preventing counterfeiting and did it without relying on a governments authority. The softwarealso solved one specific hurdle for digital money how to stop users from spending the same unit of currency twice. The breakthroughideawas blockchain, a publicly visible, anonymous online ledger that records every single Bitcoin transaction. Its maintained by a network of miners whose computers perform the calculations that validate each transaction, preventing double-spending. They earn a reward of newly issued Bitcoin. The pace of creation is limited, and no more than21 millionwill ever be issued.

Since Bitcoin first boomed, theres been no shortage of critics to call its rise abubbleand to argue that the currency has no intrinsic value. In September, Dimon called Bitcoin a fraud.But a month later his chief financial officer followed rivals at Goldman Sachs Group Inc. and Citigroup Inc. in expressing openness to working with cryptocurrencies.Entrepreneurs in the field say that focusing on the price of Bitcoin is missing the point its value is as proof of concept for a new kind of payment system not reliant on third parties like governments, big banks or credit-card companies. Others say blockchain advocates are hyping what amounts to no more than a new kind of database. Proponents of ether, the second most commonly used digital currency, respond that the etherium blockchaindoes far more than let Bitcoin users send value from one person to another. Its advocates think it could be a universally accessible machine for running businesses, as the technology allows people to do more complex actions in a shared and decentralized manner.

First published Oct. 3, 2013

To contact the writers of this QuickTake: Olga Kharif in Portland at okharif@bloomberg.net Matthew Leising in Los Angeles at mleising@bloomberg.net

To contact the editor responsible for this QuickTake: John O'Neil at joneil18@bloomberg.net

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Bitcoin and Blockchain - Bloomberg