It was nine years ago last week that "Satoshi Nakamoto" (the nom de plume of an unknown author) published a breakthrough paper in titled "Bitcoin: A Peer-to-Peer Electronic Cash System".

The invention came immediately on the back of the collapse of Lehman Brothers during the global financial crisis.

The Bitcoin breakthrough

Bitcoin was a breakthrough in computer science: it built on 40 years of research in cryptography by tens of thousands of researchers around the world.

It combined the speed of the internet to enable global, fast, real-time transactions in a practical way by solving a computer science problem called the Byzantine Generals' Problem.

This, in effect, allowed for trust between different parties over an untrusted network such as different banks or the internet.

Critically, it removed any need for a trusted "middle man" such as a central bank, government, or clearing house. Instead, trust was created through what is called a Blockchain, the decentralised system that underpins the invention of Bitcoin

Adrian Przelozny, CEO of Independent Reserve, one of Australia's trusted Bitcoin exchanges explains it like this: "The existing payment networks are not built for the internet age. There was $500m worth of credit card fraud in 2015 in Australia alone , the brunt of which had to be borne by merchants. Bitcoin is a payment system designed for the online world, removing the burden of fraud and chargebacks from online merchant."


Real-time transfers

For the average user this means value transfers in real-time and without expensive transaction fees. Transferring money online can be done in a way that the user knows is safe and secure, and the legitimacy of the transfer can't be challenged.

The enormous promise of cryptocurrencies as a catalyst to reshape payment systems in the internet era should not be underestimated.

"Bitcoin is by consensus the most secure computer network ever developed," says Professor David L. Yermack, chairman of the finance department at New York University's Stern School of Business

"Many financial institutions have recognised that blockchains are potential conduits for many assets, including digital currency, shares of stock, real estate titles, and the like. Rather than constructing a blockchain from scratch, one might use an existing blockchain as the infrastructure upon which new markets can be layered."

Billions of dollars of bitcoins and other cryptocurrencies are now being traded on exchanges everyday. Many exchanges charge a small transaction fee and allow for a conversion of fiat currency ($A, $US) to cryptocurrency.

Japan made Bitcoin a legal tender earlier in this year. Japanese banks became backers of this economy and have made investments in exchanges. Since this time the volumes on global currency exchanges have increased 12-fold.

Australia stopped double taxing crypto currencies as assets from 1st July this year. Craving legitimacy, a set of cryptocurrency exchanges have proactively worked with regulatory agency AUSTRAC so they can be reporting institutions.


Institutional money is starting to come in

When a Bitcoin exchange requests Know-Your-Customer/Anti Money Laundering information from a customer, this information can be matched to the public blockchain.

The blockchain then keeps a digital record of every transaction forever. Thus, Bitcoin transfers are considerably easier for law enforcement to trace compared to cash from an ATM, gold or diamonds.

In addition, the New York Stock Exchange became a cornerstone investor in a large US exchange Coinbase and CME announced that it is launching a futures market in Bitcoin.

Institutional money is just starting to come in and a positive networking effect of tens of millions of new Bitcoin users is currently gaining momentum.

Admittedly, overall numbers of Bitcoin users are still small, but they are growing quickly as ease of use for all participants is rapidly increasing. And it is true that the price of Bitcoin today is likely more driven by speculation than actual payment volume.

But this is not necessarily a case of Tulipmania. Speculation is a natural – and some would say necessary – part of the process of price discovery.

Daily currency exchange volume is $5 trillion. Bitcoin's typical volume is still $5 only billion, suggesting that we are still in the infancy of Bitcoin.

There are economists and business leaders who are deeply skeptical of Bitcoin. Perhaps the mainstream adoption of Bitcoin as a daily method for payment wont work, but there will be no doubt a cryptocurrency or a set of cryptocurrencies that we will be making payments with in the future.

Martin Rogers is the chief investment officer of KTM Ventures Innovation Fund.