Is Bitcoin the future of money? Not a chance
ZDNet's Great Debate asks whether Bitcoin is the future of money.
Bitcoin's appeal lies in being anonymous, untraceable, and unregulated. These attributes give the virtual currency appeal to a broad spectrum of speculators and investors, entrepreneurs, and the criminal underworld — including drug traffickers, terrorists, and anyone wanting to circumvent currency or tax regulations.
Recent events such as the shutdown of Bitcoin marketplace Silk Road, where anyone could purchase drugs, guns, and even hire a contract killer, demonstrate the government’s position on Bitcoin-related crime. At the same time, financial regulators have taken steps to pull Bitcoin toward compliance with currency laws.
Bitcoin’s long-term future is being a regulated financial instrument that serves certain purposes; in other words, once the dust settles, Bitcoin will become a niche financial services product. Is Bitcoin the future of money? Not a chance.
Although the number of Bitcoins has grown, it is an exaggeration to say that many people have gravitated toward this virtual currency. Ask the average person on the street about Bitcoin and you will be see lots of blank stares because it is not a mainstream phenomenon.
Still, for the geeks and techies who know about Bitcoin, there is an allure for several reasons:
- The coins can be "mined," or discovered, for free using computers and math. There is nothing like the allure of free money to attract interest.
- As Bitcoins gain popularity, volatility and spikes in value mean that some speculators may earn quick returns. Of course, the nature of transactions means that others may lose just as much.
- Because Bitcoin does not rely on centralized authorities for administration, it appeals, philosophically, to a certain segment of society.
The global economy is a mess, so perhaps it is time for the monetary system to face innovation, disruption, and change. However, does anyone seriously think Bitcoin is the solution to our economic difficulties?
Although Bitcoin may be innovative and disruptive, central banks will not simply relinquish control over money. That just ain’t gonna happen. Still, Bitcoin has appeal as an efficient and private means of exchange that is completely unregulated by any government. As a peer-to-peer currency, Bitcoin is a great leveler of pure value and speculation.
Bitcoin represents the spirit of libertarianism – free, unfettered, and uncontrolled. However, the same attributes that make Bitcoin attractive to those with anti-government philosophies also make it a perfect currency for illegal transactions. Untraceable, untrackable, and without physical existence, Bitcoin is the ideal means to buy drugs, move illegal cash across borders, fund terrorism, and stash ill-gotten gains without government interference.
Conventional currency works precisely because we trust that it is reliable, ubiquitous, and relatively stable. Without government backing, Bitcoin is subject is to wild swings in valuation based on speculation and greed. A quick look at the Bitcoin valuation chart shows this volatility:
The shutdown of Silk Road, combined with recent regulations from the Financial Crimes Enforcement Network ("FinCEN"), make the government’s intent clear: the days of Bitcoin as an unregulated exchange mechanism are over.
Private currencies, from S&H Green Stamps to Facebook credits, typically serve a narrow purpose that supports a particular commercial endeavor. Bitcoin is different because it is globally distributed and its value lies outside the control of any specific person or entity. For this reason, it is difficult to compare Facebook credits to Bitcoin, except to say that anyone trying to fight centralized government control over currency is wasting their time.
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How popular can a currency become when the price is wildly volatile and liquidity is not guaranteed? Imagine going to the store with prices changing by the minute. Then, you go to the ATM for cash but there is none available because the banks have all run out of money. Even worse, the banks have no idea when they can again issue cash, despite their promises to the contrary. That scenario describes what would happen if Bitcoin were our currency today. Not very appealing, is it?
Bitcoin as a mathematical concept is scalable but the infrastructure is not currently in place to make that scale possible. However, although Bitcoin exchange platforms today are not built to the robust standards required for mass adoption, with continued investment and infrastructure development they will become scalable. However, the issue of software platform robustness is completely beside the point, because scalability is purely a function of investment and time.
The real issue is how long it takes the government to regulate the life out of Bitcoin as we know it; that time is coming soon. Bitcoin teaches us there is no future in trying to avoid government regulation over basic societal functions like money. Although the financial status quo may evolve over time, fundamental change will not arise merely because geeks, speculators, and criminals think it is a good idea.
Some people believe that Bitcoin is a savior of freedom and will protect the world from snooping by Big Brother and the NSA. This view is simply wrong. The question we must ask is simple – is Bitcoin a practical and viable replacement for currency? The answer is a resounding no.
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