#FutureProof: The Bitcoin Mystery Fueling DeFi’s Rise

Does the fate of a trillion dollar digital asset – Bitcoin – depend on a ten-year-old mystery? Coinbase, one of the largest Bitcoin exchanges in the world, seems to think so.

In documents filed with the United States Securities and Exchange Commission (SEC) last month, he said the Bitcoin markets could “deteriorate” if the identity of Satoshi Nakamoto, the pseudonym of the inventor of Bitcoin , is revealed.

Nakamoto disappeared from public view in 2011, just two years after creating the world’s first cryptocurrency. No one has ever met Nakamoto in person or knows what his real name is. Even the 1.1 million bitcoins that are believed to belong to it have not been touched for a decade.

At today’s prices, these digital assets give him a net worth of US $ 64 billion (RM 263 billion), making him the 15th richest man in the world, according to the Bloomberg Billionaires Index. Still, Nakamoto refuses to show off, and Bitcoin is all the better for it.

After all, his vision was of a bank without bankers. If he had stayed, he and Bitcoin could have been subjected to all kinds of attacks. He should have consistently defended Bitcoin against allegations of manipulation and promotion, which plagued every blockchain project attempting to reinvent traditional currency.

Perhaps this is why Nakamoto disappeared in 2011 and left the project in the hands of its users. Since then, a small group of expert programmers – the “maintainers” of Bitcoin – have worked to insert updates to the Bitcoin code. Most of these maintainers are unpaid volunteers, although a few receive sponsorships from companies betting on Bitcoin.

A decade later, Bitcoin’s biggest mystery remains unsolved. Keeping this the case is critical for Coinbase, the U.S. cryptocurrency exchange that plans to go public soon. Nakamoto’s reappearance, according to Coinbase, is a “significant risk” that could “negatively affect its business.”

Coinbase was recently valued at over US $ 100 billion. Globally, only 15 listed financial institutions have a market capitalization greater than this. If it were to go public at this assessment, Coinbase would be the largest U.S. tech listing since Facebook in 2012.

Thanks to its meteoric rise, Coinbase is often compared to Netscape, the first internet company. In fact, Netscape co-founder Marc Andreessen is on Coinbase’s board of directors.

Since Netscape went public in 1995, Internet companies have raised billions in capital and disrupted almost everything from healthcare to retail. And, for years after that, the world witnessed a constant battle between the “old” and the “new” economies.

Yet, Coinbase’s biggest threat may not be traditional finance. Instead, a potential enemy came straight out of Nakamoto’s playbook.

A small team of programmers are building Uniswap, one of the largest decentralized exchanges (DEX) in the world, a type of trading platform that works without third-party authority. Running on cryptocurrency database technology, Uniswap allows transactions to take place using only code and computing power.

On Uniswap, anyone can deposit money and provide liquidity to the market. In return, they receive a share of the transaction costs, like market makers in the world of traditional finance.

Like Nakamoto, Uniswap users and liquidity providers are anonymous by default. There is no identity check on Uniswap – in part because there is no one to do those checks.

On Uniswap, traders do not have to fund accounts on exchanges. Instead, buy and sell orders flow directly to and from their digital wallets. The transaction is then executed automatically. A 0.3% transaction fee is charged on each transaction and shared among Uniswap’s 72,000 liquidity providers.

Uniswap’s growth has been fueled by the rise of decentralized finance, also known as DeFi. DeFi apps allow people to trade, lend and borrow directly from each other using cryptocurrency technology. Today, over US $ 40 billion lies in DeFi applications as collateral for loans or liquidity for transactions.

Thanks to the recent explosion in cryptocurrencies, Uniswap has become the largest DeFi project to date. Despite being barely two years old, it is already the eighth crypto asset in terms of market capitalization – a clear sign of market demand.

In August 2020, Uniswap’s daily trading volume exceeded Coinbase’s for the first time. By September, Binance – the world’s largest crypto exchange and a major rival to Coinbase – had taken action. He launched a new technology that would allow anyone to replicate DeFi apps on Binance’s own network. Soon a copy of Uniswap, PancakeSwap, was operational.

For its part, Coinbase has invested in several DeFi projects. But launching a truly decentralized exchange could prove tricky.

The number of DeFi apps continues to explode, in part because their programs, including Uniswap, are based on open source code. Software developers can easily mix code from different programs, relying on it to create innovative new applications. It is this open source movement – the unsung hero of the internet and software industry – that serves as the insurance policy for decentralization. Even though the identity of Nakamoto is revealed, spelling out Bitcoin’s fate, Coinbase need not worry. Another person, or group of people, can easily take their place.

In the meantime, Uniswap has amassed impressive achievements. Transactions amounting to $ 116 billion have already taken place on Uniswap, although the platform is largely unknown to those outside the cryptocurrency space.

On March 6, Uniswap tokens worth US $ 1.2 billion were exchanged in a single transaction that took 30 seconds to clear. The trade was the largest ever on Uniswap, according to the cryptocurrency data platform Santiment.net.

Coinbase, which was founded in 2012, has executed $ 456 billion in transactions so far. It made $ 322 million in profit in 2020, amid the surge in cryptocurrency prices. The company has 1,100 employees; Uniswap has 11.

In the long run, DeFi could emerge from the crypto space to deploy financial infrastructure beyond the scope of Bitcoin’s initial ambition. The opportunity for DeFi is huge. Global equity trading was valued at US $ 34.8 trillion in the fourth quarter of 2020. Household debt in the US market alone exceeded US $ 14 trillion. All of these jobs could be decentralized.

It’s no wonder that Grayscale, the world’s largest digital currency asset manager, is considering the possibility of offering multiple DeFi assets to its clients.

In the cryptocurrency world, innovation is happening at the speed of light. This does not mean that every project will be a success. The original disruptors could end up being disrupted, and some projects will fail and be forgotten in a few years.

Bitcoin is probably here to stay, thanks to the power of its network effects. But what about the thousands of other cryptocurrencies available? It is likely that the most successful projects will be those that most religiously mimic Bitcoin, respecting the principles of decentralization.

Nakamoto’s disappearance was a stroke of genius, but it’s also a message in a bottle.


Andrew Vong is the future Managing Director of EquitiesTracker Holdings Bhd

About Jerry Richter

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