Why Bitcoin is here to stay

Why Bitcoin is here to stay

Summary: The fact that crypto-currency makes illegal activity and terrorism easier to fund is deeply disturbing. But the drivers are simply too powerful: Crypto-currency is around to stay and the changes to our global economy will be staggering.

TOPICS: E-Commerce

When I stumbled across Bitcoin (or Bit-O-Coin, as my wife likes to call it) a few years back, my spidey sense started tingling. Since that time, I’ve made a few off hand remarks about the future of crypto-currency and received the expected “it’s another Dutch Tulip thing”. While I’m not an expert on the financial markets, I do have an excellent trade record for identifying disruptive technology changes and I’ve concluded that crypto-currency is here to stay.

Here’s why:

  • The financial meltdowns in the last decade have proven that governments can’t get the job done. Perhaps the world was simple enough or we were just naive in thinking that government was capable of protecting us from the catastrophic effects of a financial crisis. If the government’s support of A ratings of shady instruments like CDO’s didn’t convince you otherwise, guess nothing will. Globalization and technology have made the pace and complexity of markets and money way too much for inherently slow government processes to keep up.
  • Crypto-currency is like the internet for money. One of the reasons the Internet survived and was so successful is that it provided what people wanted, and was designed from the ground up to be remarkably resilient. The dangers to the world economy are very real - When will the Chinese bubble burst? Will the Euro survive? What’s the future of the dollar given the current U.S. money printing mania? A peer-to-peer system capable of providing liquidity for trade across a broad contingency of potential disasters is a very good thing and a strong feature that makes crypto-currently more than a fad.
  • Crypto-currency is a democratic movement. We’ve been writing a lot about the Age of the Customer here at Forrester, and one of its imperatives is “give customers what they want or they won’t be your customers for long”. In the simpler world of yesterday, we happily used the currency our government furnished, but today global currency markets give us options and crypto-currency is yet another. People want the ability to trade in a safe, secure, cheap, and private fashion without some government or company’s hand in their pockets through taxation and fees. Crypto-currency provides just that, and people will keep choosing what’s in their best interests.

The problems are obvious and challenging. We have a long way to go before a stable crypto-currency becomes an instrument of trade and not speculation, and we have big regulatory issues to solve. The fact that crypto-currency makes illegal activity and terrorism easier to fund is deeply disturbing. That said, the drivers are simply too powerful - crypto-currency is around to stay and the changes to our global economy because of it will be staggering. So take a reality pill and strap in.

Brian Hopkins is a Vice President and Principal Analyst at Forrester Research.

Topic: E-Commerce

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  • Bitcoin will always be on the fringe

    "The fact that crypto-currency makes illegal activity and terrorism easier to fund is deeply disturbing."

    It's not merely disturbing, it is a show-stopper. As long as Bitcoin remains the currency of choice for child porn purveyors, terrorists, and cyber-criminals, it will continue to be a volatile commodity. This is because of the occasional raids by the FBI or Interpol which will always cause drastic swings in its price. The average user will not accept this volatility, not to mention the fact that databases of customers (i.e., future defendants) will be collected during every law enforcement raid.
    PC Cobbler
    • Hackers no more trustworthy than government

      When you don't have enough people trust in your medium you cannot get your medium accepted as legit money. It's that simple.
      • Even if true

        The important distinction is governments have the force-of-law behind them and hackers don't.
        • The monopoly on force is a fragile thing

          Hackers have the proven capability to punish those who offend them. They don't use guns or bombs, but they can and do damage networks and servers. And we're not that many years away from lynch law, even here in the USA.
          John L. Ries
          • One more reason for Average Joe to never use crypto-currencies

            If the network is down, your currency is useless. Don't mistake the governments "monopoly on force" with a hackers ability to "cause damage". Any determined person can inflict damage on another, but the government can do it legally.
          • I agree on the network part

            If the power goes out, you still have your bills and coins. And while bank deposits are insured by governments, Bitcoin exchanges are insured by nobody, not even by private enterprise, as far as I can tell.
            John L. Ries
    • Was it better when it Federal Reserve Notes?

      Crime has always been with us and criminals will use whatever medium of exchange is most convenient. Over a thousand years ago, Scandinavians were not only known as great pirates, but great traders (booty isn't worth much if you can't trade it). The police have adapted to changing patterns of crime heretofore and I'm sure they will continue to do so. It may even be the case that police agencies will develop efficient means of tracking suspicious transactions (Bitcoins are, after all, mere strings of bits), thus encouraging criminals to do their trading elsewhere.
      John L. Ries
    • By that measure, so is cash.

      Makes it very easy for any illegal activity.

      Actually, easier - as you don't even need any computers to exchange cash.
    • False statements

      "As long as Bitcoin remains the currency of choice for child porn purveyors, terrorists, and cyber-criminals, it will continue to be a volatile commodity." This is the most warped statement I ever read about Bitcoin. Show me 10 cases where Bitcoin was used for the crimes mentioned and i'll show 10 million of these crimes where the US dollar was used. And databases about every customer collected?? I think you need to read about Bitcoin and the technology behind it before attempting to discuss a subject you obviously know nothing about.
    • things are changing

      When I first read something about Bitcoin some years ago, I took no notice of it. Now there are other kinds of "crypto-currencies" around, with all kinds of strange names. However, Bitcoin is so volatile. People may use it, but only until they get chips implanted and bow to one leader. This is a transition period, definitely.
  • The exact reasons for crypto-currencies use

    Privacy (specifically from governments) and avoidance of taxation and fees also happen to be the exact reasons for crypto-currencies inevitable downfall. It will never be "non-volatile" in a world where it's very existence is in continual doubt. Thus it will never "make sense" for honest Average Joe to hold as currency.
  • I just don't trust it...

    ...simple as that.
  • LOLz

    I was prepared to read a interesting article bucking the conventional wisdom that Bitcoin was doomed because it was a bubble currency with nothing underneath to prop it up. Instead I get a ridiculous article implying that Bitcoin is going to somehow prevent speculative bubbles and financial crises... as if the 2008 economic collapse was caused by government fiat currency as opposed to deliberately opaque, byzantine financial instruments and investment vehicles cooked up by three-piece-suit wearing Wall Street scam artists whose schemes got the better of them.

    No doubt we'll hear some nonsense about "fractional reserve baking" and black helicopters in the author's next column.
    • I think the jury is still out on Bitcoin

      The protocol exists, so it will continue to be used, legally or not. I don't think it will replace official currencies, but has the potential to supplement them. How widely it's used is going to depend a great deal on how stable it is and how easy it becomes for non-techies to use it. There will be those who will use and promote it for ideological reasons, but if it's only used by libertarians, anarchists, and criminals, it will always be a fringe medium, which would bode ill for stability and may even motivate governments to try to suppress it.

      As much as Bitcoin promoters may deny it, Bitcoin *is* a fiat currency (though an unofficial one) with zero intrinsic value (in the end, it's all bookkeeping, which is the hallmark of fiat currency). It's worth something only to the extent that people accept it as payment (making it different from true commodities, which are worth something even if they can't be traded). What we have here is a massive macroeconomic experiment, which means no matter how it turns out, we're likely to learn something of value (probably many somethings). I'm sure economists will be studying Bitcoin and publishing papers about it for many years to come.
      John L. Ries
      • A further word on stability

        While few people today have experienced large scale deflation (it hasn't happened since the Great Depression, though we get a taste of smaller amounts from time to time), deflation is at least as damaging to an economy as inflation is because people owe just as much money, but have less income to pay their debts (which means less money spent on other things and many more bankruptcies). What central banks and responsible governments strive for is monetary stability, though in practice, what we get is mild inflation. What we don't get is the inflation/deflation cycles of past centuries, which have a different set of advantages and disadvantages; but even then, statesmen and bankers recognized that money that varies wildly in value is good only for speculators and in the long run, not much good for them either (you can't speculate profitably on goods nobody wants otherwise).
        John L. Ries
        • Quibbling over large scale deflation

          "While few people today have experienced large scale deflation (it hasn't happened since the Great Depression, though we get a taste of smaller amounts from time to time)"

          We can quibble over whether they were "large scale," but Hong Kong and Japan suffered deflation starting in the 1990s.

          And one could easily make the case that an insidious form of deflation has hit the U.S. due to outsourcing and H-1B visa abuse. Both reduce wages in the country where products were formally made. Given that millions of jobs have been lost -- just look at the labor participation rate -- the case can be made for large scale deflation today.
          PC Cobbler
          • Good quibble

            Thanks for reminding me of Japan (I wasn't aware this happened in Hong Kong as well).
            John L. Ries
      • I've known Fiat owners who thought their car had zero intrinsic value

        "Bitcoin *is* a fiat currency (though an unofficial one) with zero intrinsic value"

        It's much worse than that. Bitcoin's price has doubled / halved in one day without any warning, unless you consider FBI agents breaking down someone's door as warning. Speculators are often responsible for this, with Bitcoin owners forced to watch helplessly as their investment changes size.

        The whole concept of "mining" boggles the mind, leading to the predictable result of cyber-boys creating bots to do the dirty work.

        Since there no government backing it, it is vulnerable to cyber-mischief and cyber-mistakes. And given the daily report of exploits against the cyber-world, e.g. Target, it's just a matter of time before someone creates one to game the system; "Bitcoin Network Shaken by Blockchain Fork" is an article about past exploits / mistakes. Bitcoin is essentially software-money -- and software can never be made 100% secure.
        PC Cobbler
  • Ah, is that Forrester's secret?

    "my spidey sense started tingling."

    Ah, is that Forrester's secret to making bad predictions?

    Talk about "spidey senses," talk about government meltdowns completely unrelated to the type of currency it uses, make grandiose comparisons to the internet and democracy.

    A good laugh.
    • He may be speaking for himself

      People do that from time to time.
      John L. Ries