The summer of 2017 will likely be remembered as the time when Bitcoin officially went from a relatively obscure thing for tech nerds to a household name. Major news outlets, finance magazines, and governmental agencies around the world began to give significant attention to Bitcoin, and suddenly an influx of new users scrambled to get in on the action. Of course, it is no coincidence that the hype around Bitcoin happened to align with skyrocketing value. Stories emerged highlighting crop of new crypto millionaires that seemed to emerge overnight, often giving scant insight into the actual purpose of Bitcoin.

As hundreds of thousands of new users joined exchanges and got their first satoshis, one question that seemed to lurk in the background of this surge was “why?”. Why exactly were so many people suddenly buying Bitcoin? While it’s likely that there is no one, precise answer to this question on an individual level, it is possible to infer some general conclusions.

Is Speculation Defeating the Purpose of Bitcoin?

USA Today published an article in November of 2017 addressing its base of mainstream readers. “If you’ve heard about Bitcoin, it’s mainly from startling headlines about its 1000% gain this year,” the piece said. Implicit within this sentence is the notion that the surge in value is the primary or perhaps only reason that readers have heard of Bitcoin. This sentiment was echoed by applied mathematician and author of The Money Formula, David Orrell, who stated, “The buzz is all about the worth of bitcoin as an investment… so it is in more of a speculator-driven growth phase.”

There is a potential paradox to arrive with speculation, in which new investors are driven to Bitcoin strictly as a means to an end. The only reason they buy Bitcoin with fiat is that they intend to sell Bitcoin for fiat when the value rises. In this scenario, nobody is actually using Bitcoin to transact with the broader economy.

Within the cryptocurrency community there are some who have maintained the idealistic view that any increased interest in Bitcoin, regardless of the reason, signals a changing consciousness concerning the potential for blockchain-based systems to transform the mechanisms of global exchange. Others harbor a more cynical perspective concerning the role of speculation as it relates to the purpose of Bitcoin.

One the one hand, more people discovering Bitcoin furthers mainstream adoption, which leads to greater demand. On the other hand, if the reason for this growth in demand is largely due to speculation – buying solely with the intention of selling back into fiat for a profit – then we need to ask what, exactly, is being adopted? It’s not really the technology of Bitcoin, but the possibility of getting rich quick. As one New York Times piece put it, “For office drudges, the underemployed or those crushed by college loans, the slim chance that a $100 investment may someday reap close to $100 million — as would have happened with an investment of that amount in Bitcoin in 2010 — is too enticing to pass up.”

Getting Back to the Origin

Looking back at the history and evolution of Bitcoin, it is important to remember the conditions that gave rise to the world’s first real cryptocurrency. While nobody knows exactly what was going on in the mind of Satoshi Nakamoto, it is likely not a coincidence that Bitcoin emerged on the coattails of the 2008 Global Financial Crisis. One decade later experts continue to weigh on the weak regulations, predatory lending practices, poor risk management models, and any number of other factors that played a role in the crisis. With some irony, however, we can note that one driving force behind the 2008 collapse was highly leveraged speculation in risky assets by large financial institutions.

In light of the crisis itself and the aftermath, which saw many of these same institutions being bailed out by governments, Bitcoin emerged as an alternative to a system embroiled in corruption and a lack of accountability. The purpose of Bitcoin was, at its core, to provide individuals with a way to decouple themselves from the very institutions responsible for creating the crisis. Eliminating dependence on third-party financial institutions by creating a secure, decentralised peer-to-peer framework for global transactions of digital cash, was the original purpose of Bitcoin.

Connecting the Dots

Zooming out, we are confronted ostensibly with two scenarios. In one scenario, the purpose of Bitcoin is as a radical technology with the potential to replace traditional fiat currency and dramatically reshape the landscape of global finance. In another, Bitcoin is a speculative asset whose value is always measured against that of fiat currency – the point is not to transact with Bitcoin, but rather to ultimately convert it back into fiat. Speculation is clearly not limited to fiat/Bitcoin exchange and it does play a crucial role in the digital asset economy. In the long run, however, if the purpose of Bitcoin hinted at in the first scenario becomes lost in the narrative surrounding speculation, we must ask what value, exactly, we are speculating on in the first place.

While the recent hype cycle surrounding cryptocurrencies may have been driven in part by speculative enthusiasm, Bitcoin’s longevity and sustained growth gives us a good reason to be optimistic that the long term outlook remains firmly rooted in its real value, and not merely its fiat price.