Is bitcoin the future?
'Is paper money going out of fashion?'
Oliver Hansen | 27 November 2016

Well, to start, what is bitcoin? Bitcoin was originally introduced in 2008, under the pseudonym Satoshi Nakamoto. Released as open-source software in 2009, computers essentially solve complex mathematical puzzles to be rewarded with a bitcoin. Once gained, bitcoins act as any other currency - you spend them in exchange for a good or service. What makes bitcoin so different, though, is the fact that there is no central bank that gives bitcoin its value, and that all transactions are direct, from one wallet to another, with no intermediaries. As well as this, all transactions are verified and stored in an open registry, called the blockchain; essentially, anyone can see the movement of bitcoin from one address to another, though all addresses on the blockchain are anonymous.

So how does any of this make bitcoin the future? Well, firstly, there is the fact that bitcoin provides a unique amount of privacy concerning currency usage. In an age since 9/11 where governments have increasingly started to spy on their own citizens, from the NSA in the US to GCHQ in the UK, more privacy can be a big concern for citizens. As well as this, bitcoin could potentially be much more stable for an international currency - the software that creates bitcoin has a hard limit of 21 million bitcoins to be created, which is estimated to be reached between 2110 and 2140. Compare this to the US Treasury, which can print money whenever it wants to in order to devalue the US currency, perhaps in order to boost US exports internationally.

Bitcoin is also beneficial for merchants themselves - since bitcoin is a virtual network, payments can be processed and bitcoins transferred internationally for no fees, as well as being open for business 24 hours a day, 7 days a week, regardless of holidays or opening times. In addition to this, it is very difficult to cheat payments with bitcoin. Bitcoin payments cannot be canceled, so along with the open ledger, merchants can ensure they will not be cheated when selling goods and services.

Of course, no new technology or ideas are without flaws. One of the most notable issues is the fact that not every merchant or store accepts bitcoin, and what good is a currency if you cannot buy anything with it? Add to this the issue that bitcoin prices have fluctuated significantly, and it does not seem like such an attractive an idea. In just a year, prices spiked from US$12 (Nov 2012) per bitcoin to over US$1100 (Nov 2013). Despite leveling out somewhat around US$600 since August 2016, it remains to be seen whether this is a firm exchange rate or a temporary plateau.

Most people have also not heard of digital currencies such as bitcoin, so without a significant increase in the popularity of bitcoin as a currency, it is unlikely to ever be universally accepted to the point where it could replace conventional currencies. There is also a potential issue in the fact that the currency is anonymous - there have already been several cases where criminals have been found to be using bitcoin as a method of transferring stolen funds, something that could pose a big threat to the existence of bitcoin as a single universal currency.

While it is clear that there are some great benefits to bitcoin, there are still some clear issues that need to be ironed out; namely, how to reduce or prevent criminals using the service, as well as addressing possible vulnerabilities that might appear if bitcoin were to become the worldwide currency of choice. However, a strong case could be made that bitcoin or a similar kind of currency could potentially be the future of currency, given the rising prominence of online shopping and internet access.

 

Original Illustration by Alex Nutman

James Routledge 2016