Bitcoins have been in the news here and there over the last few years. My first introduction to them was in a segment on NPR’s Planet Money a year or so ago. I thought about testing the waters at that time, but life and family intervened. I just wasn’t in the right place to take up something as speculative as this.
Now, just when I am looking at a couple of different business opportunities, Bitcoins made a huge splash, garnering many columns of newsprint. OK, I thought, it might be time to see what this is all about.
The purpose of this blog is really to educate myself, and maybe help a few other people along the way.
So, what do I think the future of Bitcoin is going to be? The economists are mostly saying that it is an economic dead end that will crash sooner or later. They say the fact that it is a pre-determinedly limited currency, not backed by any authority, and wildly fluctuating to boot, will cause this “Money 2.0” experiment to hit a wall. They also say that it is fast becoming a tool of organized crime. It may become just a way for criminals to move money beneath the notice of governments.
On the other hand, although bitcoins may be limited, they are also divisible, and I have read that the number into which they can be divided can be adjusted. So, if the value of a bitcoin is high enough, then smaller and smaller divisible chunks can be used to buy, say, a cup of coffee. Further, all money, whether it is backed by gold, or by nothing more than the full faith and credit of the United States, never has any more value than what the people who pass it back and forth think it means. If Bitcoin becomes a generally-accepted currency, then it will have that meaning.
As to the claim that Bitcoin will become a tool of organized crime, true. At the same time, the seedier sides of the economy have often pioneered technologies that later become mainstream. Porn played a significant role in the development of VCRs and the Internet itself. It may be that those on that side of the economy are earlier adopters not because of any problem with the technology, but because they are driven to recognize the advantages that a new technology might have earlier than other, more conservative, industries. Illicit use of bitcoins may be a positive sign for the currency’s future.
Finally, about the fluctuations. I think there is no denying that at the moment Bitcoin is nothing more than a speculative dream. Few real transactions are going to take place as long as it is prone to going up and down so much. But, if more people do start adopting it, the price will soar until the value of the coins will approximate the value of what they are needed to exchange. When that happens, then Bitcoin will be a real currency indeed.
Will Bitcoin replace government backed money? Probably not in the foreseeable future. But it may become a viable alternative, especially in the wake of economic disasters like Cyprus.