It’s happening: Bitcoin is becoming mainstream as the world’s first truly viable cryptocurrency is discussed by major news outlets around the world. The rise in profile, however, hasn’t been on the back of in-depth understanding of what this new currency might mean for the way we conduct commerce and exchange, but rather the focus has been on the rapid growth in its value. When a digital product that can be bought and sold rises from $50 to $1200 in the space of a few months, people start paying attention. When it subsequently drops down to $600 overnight, the hype takes on a certain degree of confused mania.
Bitcoin is the new media darling, but is it the right kind of attention? Is Bitcoin something you should be paying attention to? What is the good, the bad, and the ugly about this new cryptocurrency?
The Good
Grassroots experiment in global finance
Our current financial system is fundamentally unstable and prone to corporate profiteering. We’ve seen enough evidence over the last decade and all that has occurred, boom and bust, that serious alternatives need to be explored. Bitcoin was intended to be one such alternative, and as an experimental, deflationary, decentralised cryptocurrency you can’t think much more laterally from the current systems that are in place! The fundamental paper by pseudonymous ‘Satoshi Nakamoto’ outlays the reasoning behind this peer-to-peer cash equivalent and puts forward a strong case for a distributed currency with mathematically limited supply, capable of instantaneous microtransactions without excessive fees, and flexible enough to be used globally in a wide variety of circumstances presented by the new digital world of the 21st century.
Whatever the end result in this attempt to scientifically nullify the need for trust in our financial transactions; that it is occurring at all is highly encouraging and will be the focus of serious academic study for decades to come. Add to this the fact that such a potentially revolutionary shift can emerge from the activities of a small handful of individuals and we begin to see the power emerging from a new technological, global society. The political and corporate powers-that-be aren’t interested in truly rebalancing the financial status quo? Never mind, we’ll just try and do it ourselves by creating a new one… it’s quite astonishing when you think about it.
It’s Catching On
Bitcoin is really only as useful as the purchasing power it gives you as a transactional tool. Otherwise it has no connection to value beyond the speculative (more on that in a moment). Thankfully, with the growth in media attention and interest from technical experts comes a growing number of uses for the cryptocurrency. An increasing number of online retailers and service providers are accepting Bitcoin – how about a trip into space or buying one of the world’s sexiest cars – and there’s a booming start-up industry emerging to develop the infrastructure needed to take this experiment to the next stage. A lot of money is being invested not merely in purchasing Bitcoins and day-trading them, but in making them a viable internet currency. The more the spotlight is shone, the quicker a viable industry forms around it….unless…
The Bad
Speculators Ahoy!
Has Bitcoin really become so valuable as a financial utility that the rise in price is fundamentally sound? Well no, it’s almost entirely because a lot more people are hearing about it, learning how to purchase it, and interested in making a lot of money from it. Unfortunately, the truth at the moment is that Bitcoin is treated more as a commodity than a currency and the current boom is indicative of a bubble (already popped) from the Chinese market.
Such an approach by the vast sea of speculators is damaging its usefulness as an independent currency – because with such volatility you don’t sell something ‘for Bitcoins’ but rather ‘for dollars, and will accept Bitcoin equivalent’. Those are two subtly, but importantly different things. When the currency is so volatile that it can drop 60% of its value overnight, just one of many examples in recent months, that’s not a stable market and it’s not a stable financial tool. Consider just the increased risk that retailers and service providers have to take with such conditions – every sale becomes a speculative investment, not a stable and predictable cash flow.
Unfortunately until the speculators are scared off, have moved to the next big thing, or the market increases its resilience, Bitcoin will remain in its sideshow phase. Very interesting experiment, but nobody will take it seriously on a macro level until it loses that smell of a get-rich-quick ponzi scheme or pump and dump penny-stock trading scam. Even if it manages to escape such negative stigma, the ongoing possibility of government regulation quickly stamping down on its value and utility is a very real problem for mainstream adoption.
What am I doing?
Have you ever tried to buy Bitcoins? The process can take days, you suddenly have to deal with ‘addresses’, ‘wallets’, ‘exchanges’, ‘backups’ and other security concerns. Selling Bitcoins for traditional currencies often proves to be an even lengthier process, particularly in certain countries. Anybody who says that Bitcoin has gone mainstream is fooling themselves. The brand of ‘Bitcoin’ has gone mainstream, but the cryptocurrency has not and cannot until it is as easy and secure to use as a cash or debit card transaction. Even for the technically savvy the process can take days of research to even begin to understand how everything works, and there are still enough difficulty areas that will hold back any kind of serious, practically-focused growth. Added to this, the possibility that you might just be able to easily ‘misplace’ or ‘throw out’ millions of dollars with no possibility of reimbursement only adds to the consumer confusion/fear factor.
The complicated nature of Bitcoin and how it is used/traded/stored still firmly places it in the realms of the technorati – and for the foreseeable future it looks like things will remain that way. It’s hard enough just to explain to somebody what a Bitcoin is let alone how to obtain, store and use them. That’s not a good thing for something seeking to revolutionise how global transactions work…although having said that, we often don’t understand the esoteric products peddled by traditional banks – so maybe nothing has really changed!
The Ugly
Cyber-security and Bitcoin Heists
Connected to the above problems with ease-of-use, Bitcoin has become a target for hackers and con-artists of all kinds. With irreversible transactions (something that is also intended as a strength of the cryptocurrency), the security of your wallet is paramount as once a transaction is made there’s no going back. As an unregulated market, there’s no insurance or government protection if something goes wrong – and as something that exists on the cutting edge of cryptography and computer science you have the world’s best minds trying to both secure it and steal it at the same time.
There is speculation that a recent Bitcoin hacking heist/s could have topped $200 million, making it the largest recorded heist in history. This joins a rapidly growing list of Bitcoin scams and heists that highlights just how far this ingenious concept and the infrastructure to support it has to develop before it can truly be considered a stable currency for widespread consumer use. Unfortunately, attempts to do just that are often met with federal resistance.
Currency of Criminals
A recent clip from a popular morning programme (sorry I can’t find a link) showed the hosts talking about how shocked they were to learn of this ‘criminals currency’ that is completely untraceable and anonymous and used solely on the ‘dark web’. Whilst they displayed an astonishing level of ignorance for a show with a team of researchers, the underlying point is worth remembering. A significant percentage of Bitcoin transactions are currently conducted for illegal purposes.
The infiltration and closure of SilkRoad and its global illicit marketplace is a high profile example, as is the Sheep Marketplace heist mentioned above; and whilst speculations about hitmen and assassins might be slightly far-fetched there are clear and true links to a wide variety of criminal activity from credit card fraud and black-hat hacking circles, illegal weapons purchases and money laundering, through to the heinous world of child pornography. A potentially untraceable and anonymous online currency will obviously be used for the most illegal of activities, alongside its many and varied legitimate and socially positive purposes. This is a very ugly reality about Bitcoin, that it helps facilitate some of the worst of human behaviour and criminal activity. This fact, which isn’t just the same as cash because of the added ability for instantaneous global transactions, will forever haunt the utility of Bitcoin and sully its reputation.
Conclusion
So there you have it: Bitcoin can be good, bad and ugly. New technology and conceptual frameworks are never black and white, but one thing that is for sure is that Bitcoin (or something similar) fits right into the pattern of an exponentially evolving society and the need to develop a future conscience to help guide it. How we go about building an infrastructure around these new cryptocurrencies, and the role they finally settle into, will influence a fundamental shift in digital commerce and our basic relationship to money and finance.
In a time where our trust in the current economic system has been eroded to the point of non-existence by the predatory behaviour of the financial sector, it seems that the time is right for something practical to stand up to the juggernaut and point towards a better way of being. But like any tool of utility, Bitcoin will ultimately reflect the values and agendas of those who use it and (unfortunately) those who profit from it. Let’s hope we can find a way to focus more on the transformative nature of this new creation and help its positive purpose be realised rather than become increasingly fixated on its profitability alone or dismayed at the criminal activity drawn to it.
If nothing else, Bitcoin is another perfect example that the future is unpredictable and rapidly changing. Now, more than ever, we need to be paying attention to the direction we are heading – because with the world moving this quickly, if we don’t then without even realising it we might completely lose our way.
