Every few months an article will pop up on the front page of a major news website, heralding how Bitcoin is the future of world currency. Just two months ago, the CEO of the largest Bitcoin market, Coinbase, claimed that in 15 years “Bitcoin could surpass the dollar as the global reserve currency.” The claim is a bold one considering that rough estimates put the number of people who own Bitcoin at around 500,000. So, why all the hype?
Bitcoin was founded in 2009 by an anonymous software engineer (or team of engineers). What made Bitcoin so unique is that it is completely decentralized. Users create Bitcoins by mining them via their computer systems. The more powerful a user’s computer is, the more Bitcoins they can mine. In return the Bitcoin system is built on top of every user who mines for these coins.
There is a limited, but growing amount of online vendors who accept these coins as payment. A single Bitcoin’s value, $240 at the time of writing, is determined solely by supply and demand. This is the key problem with Bitcoin. Its value is still anchored in the value of dollars. Without any monetary value assigned to Bitcoin, it is functionally useless. No one sells items in Bitcoin amounts, but rather in dollar amounts that are paid via Bitcoin. In a sense, Bitcoin is a payment method more than a currency.
But a trip to any online community dedicated to Bitcoin will produce claims that other currencies are dying and Bitcoin is on the rise. Like the CEO of Coinbase, many supporters believe this unregulated currency has a future in the mainstream global market. There are some indicators that paint a positive picture. This past January, major financial players invested $75 million into Coinbase. These investors included Banco Bilbao Vizcaya Argentaria (the largest bank in Spain) and the United Services Automobile Association.
The U.S. Treasury and other nations and national banks have expressed interest into what cryptocurrency’s place in the global exchange market will be. Bitcoin is the predominant option. However, other cryptocurrencies include Litecoin and Dogecoin. (Yes, the doge in Dogecoin does refer to that shibu inu that the Internet loves.) Users point to Bitcoin’s explosive growth in 2013 as a sign that Bitcoin’s value is only going to increase, seeming to ignore the subsequent crash and inherent volatility.
Mainstream adoption is increasingly unlikely. Bitcoin originated in, and is still most popularly used by, illegal online businesses. Due to the lack of centralization and general anonymity, it is the currency of choice for the online sale of drugs, fake IDs and weapons. Bitcoin played a role in the emergence of the dark net – a “hidden layer” of the Internet whose illegal trades are fueled by the ability for Bitcoin to hide the actions of involved parties.
Concerns have also been repeatedly raised about its potential use to wire money to terrorist and criminal organizations. Bitcoin’s questionable and dark history gives it a negative reputation. These problems are due to Bitcoin’s lack of centralization, a characteristic that the currency desperately needs to shed if there is to be any chance of widespread adoption. In its current state, no government would adopt Bitcoin as a major currency.
After analyzing the facts, it becomes apparent that Bitcoin is not destined to grow and mature beyond what it is today. Without a major overhaul of Bitcoin’s system and values, it is naïve to think that there will be widespread adoption. There are too many inherent problems and general complexities with the currency for it to gain mainstream traction; however, Bitcoin’s death shouldn’t spell the death of cryptocurrency as a whole.
The future may well give rise to a government-operated and monitored cryptocurrency, that could replace currency as we know it today. But, for now the Internet will have to settle on the humble life of Bitcoin. Its value may rise and fall, and tech savvy investors will continue to speculate. But Internet communities will continue to do what they do best: live in the bliss of Bitcoin’s ignorance.
Colin Mortimer is a contributor to The Daily Campus opinion section. He can be reached via email at email@example.com.