Explaining the success of Bitcoin: A holistic perspective

The success of Bitcoin is remarkable from several perspectives. It was developed by one or more members of a non-institutional, non-financial marginal group at the very least related to the subculture of libertarian digital natives, which, in the public iconography, is usually associated with nerds, hackers, digital radicals and criminals. Even its designer was and has remained a total unknown to this day. The stated goal of the Bitcoin designers was to create a decentralized secure digital peer-to-peer trading platform. This goal did not respond to any broad popular public appeal existing at the time, nor did it respond to any dysfunction of existing digital trading systems. Given these facts, the tremendous and sustained success of Bitcoin and the hundreds of cryptocurrencies that have followed in its wake bears explaining.

The purpose of this paper is to trace the development of Bitcoin from its inception in the Nakamoto paper of 2008 to this day and take a holistic perspective in determining the factors that have led to its success. The entire study has a behavioral economic touch.

Following the thorough description of the development of Bitcoin, the paper will follow a psychological approach, using established models that deal with cognitive biases in decision making, (Kahnemann, Tverskry), herd behavior (Kahnemann, Tversky, Vernon, et al.), and tipping point (Gladwell) effects and apply them in the context of the political and economic developments that formed the backdrop of the stage on which Bitcoin was introduced and gained popularity.

In this context this paper also aims at identifying specific key integrated psychological indicators and factors that contributed to the unpredictable success of Bitcoin which could be used to complete or develop existing forecasting models.