Bitcoin might be Netscape

Bitcoin could die just like Netscape, but I hope it doesn’t. Here’s why.

If you don’t know what Bitcoins are, Wikipedia has a fantastic article to start with here.

The 90s and Dot-com

I was exactly 7 years old at the peak the dot-com bubble. I remember, around this time using Netscape Navigator to search Lycos.com (or was it Ask Jeeves? or was it AltaVista?) for whether or not Michael Jordan actually sang “I Believe I Can Fly” in Space Jam. I don’t recall, however, ever caring or knowing that my 7th birthday, March 10th, 2000, marked the beginning of the recession of the early 2000s. It also marked the point at which my father and many others lost their jobs because of the economic recession. Although the economy recovered, what good is a mistake if no lessons are learned?

Marc Andreessen, co-founder of Netscape

Netscape who?

Let’s examine first company I mentioned: Netscape. The company was founded by middle-aged tech pioneer Jim Clark and young programming prodigy Marc Andreessen. Netscape offered several products but they are best known for Netscape Navigator. If you don’t know, Netscape Navigator used to be the web browser that everyone used. Netscape went on to invent such technologies as JavaScript and SSL, both of which are widely used even today. Navigator had a marketshare of approximately 90% of all web browsers before eventually losing out to Microsoft’s Internet Explorer in the late 90s.

Netscape’s marketshare: the rise and fall

What happened?

Netscape Navigator was a really solid web browser for its time while Microsoft’s answer, Internet Explorer, was simply inferior. Netscape even had an IPO in August of 1995 which landed the completely profitless company at a valuation of $3 billion on its first day of trading. However, all of this success eventually fell short somewhere around version 4.0 of Netscape Navigator. What happened? Well, at this point, Microsoft also had billions of dollars and a great piece of software in Internet Explore 5.0. Netscape eventually had a hard time keeping up with new web technologies despite being a leader not too long before. Subsequent versions of Navigator often crashed because of simple things like cascading style sheets, and would have odd problems like reloading entire pages upon window resizing, which was a massive issue in the days of dial-up internet. Users slowly left the bogged down, buggy, bloated relic of the 90s for Microsoft’s flashy, new, and illegally bundled web browser. AOL ended up buying Netscape for 4.2 billion dollars before the entire market had totally switched to Internet Explorer. This eventually left both cofounders extremely wealthy but with an essentially dead product.

Let’s re-examine the heyday of Netscape to better understand how this all happened. One year after the company was founded, Netscape was worth 3 billion dollars, how could that be?

People bought in on the idea that the internet was the next best thing, and chose Netscape to lead them there.

Netscape was at the forefront of an industry that would allow people to traverse the “internet superhighway” and communicate & collaborate with people around the world. Let’s be honest here, the internet was world changing, and the internet did end up being the next best thing. The problem with Netscape was that it was just a tool, a vehicle, a channel, a door, a pathway to accessing the internet. The internet would continue to exist even after Netscape’s demise. Netscape wasn’t worth $3 billion because of the revenue of $49 for each copy of Navigator.

Netscape was “worth” $3 billion because people thought that the internet would be huge and Netscape’s stock was the natural speculation vehicle for this communication network.

This phenomenon is known as hype. People hyped up the internet so much that everything and anything remotely related to the internet exploded with speculative investment. Here are a few more examples of massive dot-com speculation:

Lycos.com — a search engine purchased for $12.5 billion in 2000 only to be sold for $95 million four years later.

Pets.com — an online pet supply retailer had raised $82.5 million from its IPO in February of 2000 but was bankrupt by November of the same year.

Pets.com’s famous sock puppet mascot

Broadcast.com — internet radio company started by Mark Cuban. Sold for $5.7 billion to Yahoo! (which was $10,000 per user) but now just redirects to Yahoo’s homepage.

The list goes on. Many of these companies had good ideas and tried to take advantage of being first movers in this new industry. Of course Broadcast.com turn out to be a flop, but internet radio still lives on to this day, with services such as Spotify and Rdio. Search engines also still exist and you can certainly still buy pet supplies online. None of these concepts were wrong or stupid, they just got caught up with the massive speculation of the dot-com bubble, overspent their raised capital, and couldn’t live up to massive expectations. The internet did survive this crash and turned out to be a huge market which offers an amazing communication network to billions of people around the world.

What can we learn?

We know that people want to make money, and we know that correctly predicting “the next big thing” has high returns. That’s part of why bubbles happen. We also know that it’s very difficult to predict “the next big thing”, but we can make pretty good guesses even if our investments aren’t in the right place. People correctly guessed that the internet would be huge, but incorrectly invested in companies that eventually went belly up.

We also know that economic bubbles happen when too many people throw too much money at one thing. This happened with the internet in 2000, this happened with housing in 2008, and it even happened with tulips in the 1600s. Of course every bubble is slightly different, but they are similar. I won’t go into any economics, but it’s fundamentally impossible for everyone to sustainably make xx,xxx% gains.

For every person making a fortune there are many who lose it all.

Relating to Bitcoin

So on to the main point of this post. How is Bitcoin at all similar to Netscape? In many ways, Bitcoin is totally different from the now defunct web-browser of the late 1990s, but the speculative nature is similar. Many people bought into the idea that Netscape was going to take their investments to the moon and beyond. Some people absolutely made a fortune on Netscape, and many people have made a fortune with Bitcoin. The fact still remains that Bitcoin has recently skyrocketed past $1000 USD with relatively little usage as a currency. People are treating it like a commodity to be hoarded rather than a currency to be spent. This hoarding is very similar to the what happened in the Netherlands in the 1600s when prices of tulip bulbs skyrocketed to “10 times the annual salary of a skilled craftsmen”.

Just like Netscape, Bitcoin is probably somehow related the next big thing. In other words, just like how Netscape grew as a way to access the internet, Bitcoin will grow as a way to extend our beloved communication network to include digital currency. Methods of financial transaction (paper money, banking, credit cards) have been around for a long time and having a true digital currency is the natural, futuristic extension of that. People want a way to process payments without going through a third party. They also want security.

Bitcoin is an amazing answer to digital transactions and could change money forever.

That being said, Bitcoin is very young. It could die tomorrow. Many experts have said that Bitcoin is secure, but it only takes one hacker or exploit to prove everyone wrong and the price to drop to zero. The idea of having a digital currency might live as long as the internet does, but just like Netscape Navigator was replaced by Internet Explorer, Bitcoin can be replaced as well.

In Conclusion

Bitcoin is awesome. It’s amazing. Bitcoin is what science fiction has been calling “credits” for years. Bitcoin is what many have hoped for since the start of the internet. The idea of a peer-to-peer transactional network is almost too obvious now that it has been created. But if there is anything to learn from bubbles of the past it’s that speculative euphoria has its limits. Fifteen minutes on any Bitcoin discussion board will leave you thinking that Satoshi Nakamoto is in fact Jesus and that a currency has saved the world.