The recent meteoric rise in the value of the cryptocurrency Bitcoin has fuelled an avalanche of mainstream press coverage in recent weeks. With the value of each Bitcoin rising from around £3,350 in early September to trading north of £13,000 around the time of writing, holders of Bitcoin, even over such relative short time horizons, have been making out like bandits! At least on paper, unless they jumped off, pocketed the handsome reward and watched the rocket continue its (for now) race to the stars, the cavalier speculators and miners aboard, grinning like Cheshire cats.

One can only talk of Bitcoin’s value of course; devoid of underlying tangibility, asset, instrument or anything of intrinsic value, no dividends, no coupon, worth only that which someone is willing to pay for a stake in virtual camp Bitcoin (or perhaps receive in order to exit...). Estimated to have a market cap today of c$305 billion (The Coin Telegraph, 08/12/17), what next for this historic binge of global proportions?

Nex Group’s Walter Zimmerman (as recently quoted by FT.com) described it thus: “Bitcoin can be seen as a currency of video gamers, by video gamers, and for video gamers. What do I mean by this? Users of other currencies find utility in a stable value. But not here in Bitcoin world. The reality of Bitcoin is that users are also players. And the objective of this game is the highest possible score. The path to wealth for Bitcoin users is to drive the value higher, and higher, and higher. This dynamic and [other] freedoms make Bitcoin a likely future home of the largest speculative bubble in recorded history. And the lack of law enforcement also make Bitcoin a potential future home of the largest theft ever.” Powerful stuff. We have been warned!

One wonders where the money is coming from? Bitcoin’s genesis, at least in part, driven by the great financial crisis (GFC) and the failed old world financial system, its hyper inflation may be fuelled by a decade of quantitative easing, low interest rates and investment return, current market confidence (the banks are recapitalised and the doom and gloom of the GFC is behind us forever right??) and the relentless quest to find yield somewhere, anywhere, even here. A cryptocurrency favoured by the darker sides of the human race but having unique potential to deliver returns bigger than fantastical payday lending returns. And anyone in the World can participate. In their millions they clearly are, fuelling a demand over supply juggernaut.

One hopes this isn’t another crisis brewing since surely the big money institutions, pension funds, insurers etc aren’t heavily invested in Bitcoin? The tea leaves are difficult to read. Bitcoin futures trading on the Chicago exchanges is imminent and with it, the potential for systemic risks flowing through to those very same institutions that were crippled by the GFC. The big Wallstreet banks aren’t happy and are thankfully vocal in their angst. The margin that backstops the contract is placed in a clearing house – i.e. those big banks. What this means is the translation of a virtual ‘paper money’ risk to cryptocurrency speculators who can presumably afford to lose it all, into a real world risk. Bitcoin’s price has collapsed by 80% more than once in its history. With a market cap today that is bigger than Bank of America, the largest banking stock listed on the Dow, such a fall would surely hurt any financial institutions caught in the crossfire.

But doomed Bitcoin almost certainly is. Unlike fiat currency, Bitcoin is inherently finite. Being hard-wire limited to 21 million Bitcoins is one reason for its inevitable failure. Think of all the coins we lose down the back of the sofa. Sounds silly in the context of a $300bn digital currency but think of it this way, a lost cryptocurrency wallet is an irreplaceable loss to the Bitcoin ecosystem. No printing press here. In November 2013, The Telegraph reported a hard drive containing 7,500 Bitcoins lost in a Newport dump. On 26 May 2017, the Daily Mail reported Campbell Simpson as having lost 1,400 Bitcoins the same way. Silly mistakes by individuals. But consider the recent schoolboy error by the innocent deletion of code rendering digital multi signature wallets inaccessible – potentially forever. $280m of Bitcoin gone. Ouch. The Internet is literally littered with such tales of woe. Bitcoins never to be replaced and simply irreplaceable. Over a long enough time horizon, so the logic goes, all of the pennies will be lost at the back of the sofa.

Another issue inherent in the Bitcoin architecture and far from lost on Interpol is the ability to track the history of Bitcoins. The ledger is transparent for all to see and data mine, including the Authorities. Consider a situation where a regulated entity is receiving Bitcoins which later turn out to have been, at some point in the past, used for terrorist, drug or human trafficking activities. Might they be seized as linked to criminal activity? Might these too be lost or impounded? And what of the immediate pre-seizure transaction? Innocent though it may be, as a lawyer, I shudder at the regulatory implications from clients (unrelated to such activities) legitimately sending funds to a solicitor’s client Bitcoin account, should those Bitcoins become of interest to law enforcement Authorities.

Bitcoin’s lack of intrinsic benefit is also its achilles heal. To mine Bitcoin requires intense computing power, consuming huge amounts of energy globally. The Digiconomist website estimates global Bitcoin mining energy consumption. At present it stands at 32.56TWh per annum – 0.15% of the World’s energy consumption, generating an estimated 16kt CO2 per annum. The fact that today it even registers as a percentage at 1 decimal place when it delivers nothing of intrinsic value is incredible. This is equivalent to around half of the annual output in TWh of the UK’s existing nuclear fleet. In some reports, including Ars Technica, Bitcoin mining currently uses the equivalent of c1% of the power consumption of the USA and exceeds the power consumed annually by 159 countries (thankfully not in aggregate!). Power consumption is similarly projected to be meteoric but thankfully reducing when the reward for mining halves in years to come, as Bitcoin is intrinsically designed to do. Lump this demand on top of future electric vehicle power demands – estimated by the UK’s National Grid to require 3.5-8GW of new capacity (depending how ‘smart’ vehicle charging becomes). That’s 1-2.2x the projected maximum output of the Hinkley C new nuclear plant that will deliver c7% of the UK’s low carbon power needs. Now extrapolate that globally and you can see the inevitable problem of priorities. Bringing significant generation capacity online takes years, even decades and costs billions. Power for hospitals, transport and schools anyone? Sorry, we don’t have the capacity – the Bitcoin miners are at it again.

Frankly Bitcoin has an image problem. Filthy speculated wealth is hardly likely to enhance it in the eyes of many, prejudicing its adoption and ultimately halting interest in the currency itself. If interest fails, in light of its lack of underlying value, it’s ‘value’ is sure to fall and potentially crash as positive sentiment of those chasing a quick buck wanes. In reality “This is basically like a Ponzi scheme — trading with no substance. Investors are basically passing the bomb. Still, its trading volume has surpassed the Kosdaq’s,” said one South Korean government official, referring to South Korea’s minor bourse.

So, to the point of this post. Whatever the fate of Bitcoin, its value in delivering global awareness of the potential of blockchain is undeniable. And here is where the real human utility in Bitcoin lies. The potential for Bitcoin’s foundational blockchain technology to transform industries, reduce cost, drive global productivity and benefit many parts of the world (both developed and less so) is significant. This I hope is not lost before blockchain can really deliver. The world needs to clearly understand the difference between Bitcoin and blockchain and the two are often conflated.

Bitcoin may die, long live blockchain.