Surely you’ve read about the emergence of the virtual currency bitcoin? This innovative alternative to government-issued currency has outlived several similar ideas started over the past few years and is eclipsing a handful of competitors trying to create the next greenback. It’s a Libertarian’s dream of capital outside the control of the state.
Count me among the skeptical and unconvinced.
Bitcoin was developed in 2009 by a reclusive web developer(s) Satoshi Nakamoto as a peer-to-peer payment system. These units, or bitcoins, are ‘mined’ through a competitive claims process with specialized technology, at the rate of 25 bitcoins every ten minutes. In 2017, this rate will be halved to 12.5 coins and halved again every four years until the programmed 21 million units have been released by 2040.
All bitcoin transactions will be recorded in a public register called a ‘blockchain’ and the full history of each coin is tracked into perpetuity, according to their bitcoin address, which does not necessarily include the participant’s identity. You can buy them for cash today in nearly any currency through online exchanges or special ATMs.
This currency has a market value based on its perceived buying power and intentionally are exchanged outside the control of any government. The coins have steadily risen in value since inception to a high of $1,100 each, as the idea and enthusiasm for them have grown among many participants worldwide.
But their value has also shown to have significant volatility as the cottage industry around the Bitcoin has not proven to be as enduring – 45 percent of the exchanges have failed. The most prominent exchange, Mt. Gox, filed bankruptcy in February after disclosing that they could not account for 850,000 bitcoins (valued at $500 million), which were believed stolen due to software flaws.
Bitcoin value proposition seems to be that it’s a cheaper and more private manner to transfer payments than cash, credit cards, bank transfer etc. But that provides a major benefit of money laundering, tax evasion and theft, which present new risks to a global economy.
Libertarians love the notion that Bitcoins have a fixed maximum number, which will forever prevent the monetary expansion (or contraction) they vilify.
An article in the Examiner.com tries to make a case that Bitcoins are good for small business owners by giving them easier, less expensive payment options to sell goods or service internationally, but obviously, that’s not the most dominant barrier – finding buyers is a harder problem to overcome.
Personally, I believe the negative potential from this non-state issued currency far outweighs any potential benefit. This currency, if it lasts, will take 10-20 years to be sufficiently useful. It’s hard to imagine how we could drive a $72 trillion global economy with fractions of only 21 million Bitcoins.
Also suspect as this currency’s ‘store of value’ function, required of any viable medium of exchange. As it exists, it’s a speculative investment whose value is difficult to predict or accurately assert.
For my money, pay me with old fashioned Benjamins, please.