Bitcoin is failing at pretty much everything it set out to be – but can still change the world

Bitcoin, Bitcoin, Bitcoin. As someone who works in the digital realm, and has my fair share of dealing with the financial industry, too, Bitcoin is everywhere these days. What’s new is that during the latter half of 2017, it made the leap from those industries, and the true believers, to mainstream. Suddenly, Bitcoin was something your uncles started discussing at the holiday feast table.

That was of course largely spurred by the extreme value increases that we’ve seen since the beginning of 2017. And the sharp drops we’ve seen lately only made the debates and the interest that much more heated.

Generally, there are two groupings of opinions: one that says that Bitcoin is the future of payments and will change the world, and one that says that Bitcoin is a fluke, a bubble, unimportant at best, most likely extremely risky investment, and a god-send to criminals, rogue nations, and terrorist organisations.

And they’re both right. And wrong.

The Bitcoin movement (here I’m talking about the public movement surrounding Bitcoin, and not necessarily the original intents of its creator, Satoshi Nakamoto, who still remains anonymous) has long touted Bitcoin as the payment instrument of the digital age, a decentralised, anonymous, all-digital currency that isn’t tied to a treasury, a state, or based on any commodity. They describe a future where states and central banks exert no control over the payment instruments we use, and everything has handled online, trust and stability ensured by the almighty Blockchain. A currency not for the few, but for the many, the ultimate democratic currency, no central banks, no third parties, just payments from you to me (or vice versa). Some have even claimed that Bitcoin is the fulfilment of the socialist dream of wealth redistribution. And that one day soon, countries would start replacing their national currencies with Bitcoin.

And from that perspective, Bitcoin has failed. With the latest surge in value, and the wild fluctuations, Bitcoin is becoming a subpar means of payment. Trading in Bitcoin is difficult when a single bitcoin can go from a value of $20,000+ to $10,000 in an extremely short amount of time, how do I know what a given item actually costs? At the end of the day, I’m backing my Bitcoins with a national currency, so fluctuations are a problem.

Yes, some Bitcoin enthusiasts would say, but that’s easily fixed: your country should just make the switch to Bitcoin as national currency. But that just moves the problem up the scale. No state is interested in basing their national economy on such a volatile currency, for the same reasons that I am not willing to place my private finances in one. Stability is a good thing in national economy. It’s what we’ve strived for for centuries. And because Bitcoin isn’t tied to anything, no central bank and no commodity to regulate it’s worth, it is volatile, and will likely continue to be so for a while to come.

So until every nation in the world make the switch, simultaneously, to Bitcoin, it will be a problematic means of payment for most individuals, companies, and states. And seeing that even within the Eurozone, they can’t get everyone onboard for the Euro, that’s unlikely to happen.

The democratic element is under fire as well, as more and more Bitcoin traders are moving in and managing the sales of Bitcoins. Today, if you want Bitcoin, you very definitely need a third party. The days of mining your own are over, unless you have an IBM data center in your backyard.

Bitcoin is today mostly used as a highly volatile, high-risk investment for the modern version of day traders. A very few are getting very rich off of trading Bitcoin, and that was not the original idea. And before you ask, yes, the Bitcoin value is a bubble. How can it not be? A bubble is defined as when an asset is traded at values that exceeds it’s intrinsic value, but as Bitcoin only has the value that the market place gives it, Bitcoin can’t be anything but a bubble, in financial terms. Whether it is an unsustainable bubble is a different question, and one that no one has a definite answer to.

And yes, Bitcoin has been used as an anonymous means of payment for shady nations, individuals, and organisations, the critics are right about that. But that isn’t the same as we should abandon it, or cryptocurrencies as such. Essentially, everything that protects the privacy and freedom of law-abiding citizens can be used by those not abiding by the law to protect their illegal enterprises. Just ask the FBI how they feel about the iPhone’s encryption.

But Bitcoin is down right now, but it’s not out. Or rather, the technology behind it is not out. Bitcoin may fail, it may not. Other cryptocurrencies may rise to take Bitcoins place as the most well-known amongst them, and they, too, may fail. But the technology is out there now, and we can’t (and shouldn’t) roll it back. The monopoly of banks and national treasuries to create value and payment methods is broken, and while the manifestations into individual currencies may still be a work in progress, that doesn’t mean that the ride will roll back again. And the technology behind Bitcoin, the much-discussed Blockchain, is not limited to Bitcoin, and it, too, is here to stay. And with the recent news that IBM is collaborating with the world’s biggest shipping company, Maersk, to use the Blockchain to improve the tracking of goods in shipping, it is obvious that the Blockchain has moved away from the fringe digital projects.

Bitcoin may fail (or not), but it will still change the world.

Photo by Marco Verch

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