Is Bitcoin the future of money? Not a chance

Is Bitcoin the future of money? Not a chance

Summary: Bitcoin has appeal as an unregulated medium of exchange and value. But, its days as an efficient funding source for illegal activities are coming to an end.

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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:

bitcoin valuation

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.

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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Topics: Security, E-Commerce, Great debate

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  • Bitcoin just needs to pivot

    As most entrepreneurs know if people think your idea is crazy you are probably onto something.

    The companies that are emerging around bitcoin usage should look to other markets. Like countries that have unstable governments, like areas in the Middle East and Africa. Bitcoins would be appreciated more there rather than the country's own currency due to the governmental uncertainty. Emerging markets might also be a good place for bitcoin. They might prefer a currency that already has unique markers and system for identification. Areas where they bank just using cellphones might also be a good niche market for bitcoin. It might have been dealt a blow by the Silkroad closure, but it is not going away. Remember that Apple's first computers were crappy children's toys but look at them now.
    • Computers and bitcoins are two totally differen things

      so to make that connection that this can grow to be the leading currency isn't a good analogy.

      What good are bitcoins as a currency in Africa if it can't trade beyond it's border? Is there any physical wealth backing it up? If a bank won't convert it to cash for you, what value does it have?

      Once it becomes regulated (no banking system will trade in uncontrollable and unregulated currencies) it become the same thing we have now.

      You'd do much better mining for gold then bitcoins, as with the fist it is a tangable, physical medium that fluctuates in price.
      • Response

        "Is there any physical wealth backing it up?"

        William, you've struck the bedrock of what constitutes "value" with the shovel of a stupid question. Bitcoin has value because, (1) it's scarce and (2) it has specific attributes that make it an ideal store of value and "programmable" medium of exchange. You need nothing else.

        "Once it becomes regulated (no banking system will trade in uncontrollable and unregulated currencies) it become the same thing we have now."

        It becomes the same as what? Please read Satoshi's original White Paper. I don't think you're correctly understanding the technology behind the protocol.
        Nigel Hess
        • In other words...

's backed purely by supply and demand. If demand goes away, then the value goes through the floor.
          John L. Ries
          • ..

            What isn't backed by supply and demand? That's how a market operates.

            Again, Bitcoin has value because, (1) it's scarce and (2) it has specific attributes that make it an ideal store of value and "programmable" medium of exchange.

            It will never not be (1). The only way (2) will be eliminated is if a more efficient technology comes along, in which case we're all better off.
            Nigel Hess
          • Bitcoin is only valuable as a medium of exchange

            Gold and silver, on the other hand, have many useful characteristics entirely separate from their trading value (even the tobacco traded in 18th century Virginia had that). This is what is meant by "intrinsic value".

            In other words, bitcoin qualifies as fiat currency, even though it's not imposed or backed by states or even private institutions.
            John L. Ries
          • Wrong again John

            "Intrinsic value" means something has value in and of itself. Gold has limited intrinsic value as a metal, due to it's specific physical attributes. The Bitcoin protocol has intrinsic value as a means of exchange (a currency), due to specific attributes of the technology. Inevitably, it may begin displacing currencies with inferior properties. After all, money is a commodity like any other, and it must compete for the attention of those who use it.
            Nigel Hess
          • "In and of itself"

            That would exclude value as a medium of exchange, or as an investment instrument. In and of themselves, bitcoins are mere numbers. They are only valuable to the extent that people can trade them for things they want. I doubt anyone wants a bitcoin for its own sake, making it fundamentally different than a house or a Van Gogh painting; even though both of the latter are also used as instruments of investment.
            John L. Ries
          • ...backed by supply and demand...

            That goes for anything. Please offer me a reasonable explanation why the individuals around the world will reject a low cost, frictionless, censorship proof medium of exchange like Bitcoin?
          • Response

            Kind of like what happens when the US stops giving out loans?

            There is so much misinformation here, even worse the article was very poor. It is obvious the writer does not understand digital currency on any level and hence should not be writing any articles in relation to them.

            The value of bitcoin as an exchange medium across country borders is unparalleled at the moment.

            As for the anonymity it provides, has no one stopped to think the amount this could reduce the fraud budget? Unlike a credit card, when you use bitcoin on the internet you are not exposing your information to fraudulent activity.

            No one said bitcoin would take over the currency market, but if you think for a second it is not going to play a large role, then you can not possibly understand the currency or its benefits.
            Todd Thomas
          • Identity theft

            1 in 10 people have been the victim of identity theft...........
            Todd Thomas
          • Bitcoin is filled with crooks

            Wow... so? Bitcoin is filled with crooks trying to unload and cash out their Bitcoins on unsuspecting Bitcoin hazed millionaire wannabees who are totally misguided and misinformed. But that's wonderful right?
          • Irony of ironies

            Wow... some people are really dense. Due to anonymity, it prevents fraud? Go ahead and burn in Bitcoin by yourself!!! That is all I ask from Bitcoin pushing morons.
          • so is anything

            wake up buddy. so is anything.
        • It's you who isn't understanding, Nigel

          Look, I get you have an interest in pushing Bitcoins. You probably "invested" heavily in them, but that doesn't change the fact that bitcoins will remain a tiny niche currency, more along the lines of bartering then as legal tender. If you want to trade in it, be my guest, I'll stick with something that is backed by institutions and governments.

          A pebble is as valuable as a bitcoin, if I and others wish to trade in them for services. It only has the value the we give it. If outside our circle nobody else gives it any value, then it's a niche currency, and it becomes valueless beyond our circle of friends.

          I understand how bitcoins are generated, I understand the more "found" the less available, (like Gold) but as noted, Gold and silver have value due to it's physical properties, unlike Bitcoins which have no physical properties.

          To put it bluntly - I have yet to walk down the street and see a sigh saying "In God we trust - All others pay Bitcoin"
          • Response

            You really need to watch the video money as debt on youtube, you have been brainwashed to cling to the thing that puts you, and your children in more debt daily.

            I remember using a computer for the first time and it feels the same now with digital currency. No one understood what it did and did not think it had a practical purpose for the average household. You had to fire up this green screen, remember the commands to access files and programs, and the average person thought it was too difficult.

            We can not even imagine today how we will use bitcoin in the future, let alone the platforms that will be built on top it.
            Todd Thomas
          • Digital currency? Please...

            Central Banks will create legal and regulated digital currency. But actual cash will never go away. Gold will never go away. People are clamoring for currency backed by gold and you think digital currency that is converted by injecting printed cash into it is some wonderful solution? Digital currency? We are already using it. If you deposit your real cash into Bitcoin to convert it to Bitcoin, I gotta tell you, that is not digital currency. That is some bizarre world. Nothing will be built on top of Bitcoin. Go talk to these Bitcoin millionaires and see if they can even take the money out. They can't. It will on spur on scams and illegal activities in an attempt to at least cash some of that Bitcoin out they amassed by themselves and others putting real central bank printed cash into Bitcoin world. Take a bit step back and look at the Bitcoin world. It is downright PATHETIC!!!
          • Digital Currency? Yes please..

            currency has already been "digital" for some time. most dollars are just numbers in a computer. there is not a physical "dollar" for every one listed in a bank accounts ledger. if that had to be so then they couldn't lend your savings out multiple times at once. (see fractional reserve banking if you want to learn more.) and although I would agree with you about wanting gold backed currency, that will never happen again and I think the population at large is hardly "clamoring" for it. our society is addicted to debt and when dollars are tied to gold they can't be created as easily or lent out as much.

            although it was pretty complicated before to buy or sell bit coins with dollars its pretty damn easy now. You don't really know what your talking about there.

            the whole myth about bitcoin being a criminals dream is bunk. dollars are still king in the criminal world since only they are anonymous. bitcoin is not nor is it untraceable. silk road had little to do with bitcoins value. as evidenced by the fact that it barely affected the price.
          • Insulting the opposition..,.

   probably the least effective way to gain converts.
            John L. Ries
          • Egold and other crap...

            Idiots and short sighted people said the same glowing crap about Egold. And other crappy stuff that only ended up promoting online scams. Bitcoin is the same. Just look at the list of bitcoin millionaires. Or even those with some sizeable Bitcoin wealth but they cannot either login or even cash out $1,000 in real money. Tell me. People are putting real central bank printed cash and money into bitcoin in order to convert it to Bitcoin and to keep it within Bitcoin world. What value and scarcity does it have? None. Can you buy a car with it? From other Bitcoin peddlers? They are trustworthy? Some moron will sell you a brand new car with Bitcoin? Or will that person scam you? Sad reality is that once anyone converts their real money into Bitcoin, it then becomes a very intangible hazy questionable thing. Otherwise, Bitcoin millionaires will be able to buy Ferraris and a Laguna Beach condo with their Bitcoin wealth. Wrong. These morons cannot even take out $500 out from their bitcoin account.