“Is the writing on the wall for the online currency?” This was the question I posed upon my first, ill-fated attempt to write a review of Bitcoin more than a month ago. To put the apocalyptic alarm in context, Silk Road-the online Bitcoin-denominated black market-had just been brought to a grinding halt by the FBI, prompting fears of the currency value diving and reigniting the debate on its viability in the real world. However, the collapse never came and today Bitcoin value, at more than $350, is more than double what it was before the Silk Road debacle. Nonetheless, the naysayers have not been silenced altogether and the debate on whether the future of the financial system lies within the protocols of the internet is far from over.
For the uninitiated- Bitcoin is a decentralized currency which exists solely on the internet-guarded by and born within the algorithms of cryptography. It therefore displays the same allure which draws hundreds of millions of people to the net itself. It is minimally regulated, operates across borders and offers direct peer-to-peer transactions. In a world which is less than fond of the banking institutions, the cryptocurrency offers an alternative, with minimal, if not non-existent transaction costs. By expanding the convenience offered by online banking, Bitcoin has raised the prospect of a world which will someday rid itself of the need for physical currency. Its border-less nature has excited those who believe in the potential of the internet to house the freedom of the world’s citizens.
Once the tender of only the dark net, it is quickly expanding into the cyberworld beyond. Even US politicians may look forward to campaign donations being made in Bitcoin-something which may be positive for the currency, but may very well fuel the out of hand legalized bribery within American politics. Small business owners, from coffee shops to pizza outlets, have begun accepting Bitcoin and recently, the first Bitcoin ATM made an appearance in Vancouver-processing over 100 000 CAD within its first week. Popular sites, from WordPress and Reddit to Amazon, have been unsurprisingly receptive towards accepting digital currency-after all, their existence owes itself to a willingness to expand the reach of the internet.Using apps like BitcoinGet and Bitcoin Tapper, which reward users with coins in exchange for viewing Youtube videos or tapping an icon repeatedly, the homeless in Florida are utilizing the new chapter in the digital revolution as a means to secure their daily bread(something which is especially useful in context of the insistence of the Republican Party to cut food stamp spending). Bitcoin mining, which involves using one’s computing resources to solve complex mathematical problems in exchange for a monetary reward, has become increasingly attractive-with individuals prepared to pay thousands of dollars for mining-primed hardware. However, the birth of internet currency has not been devoid of complication.
On the 8th November, thousands of users of input.io received a message from the payment processor informing them that 4100 Bitcoins had been stolen in a hacking attack. Input.io, known (rather ironically) as Tradefortress, attributed the breach in security to compromised email addresses and is now encouraging users to store their coins offline. It has promised to repay users who lost more than one Bitcoin and at current value, the total amount lost in the hack is equivalent to more than $1 million. A paper published by Cornell researchers dealt another blow to the currency, as it exposed the possibility of exploiting the Blockchain protocol to conduct ‘selfish mining’-which involves ‘pools’ of miners hiding their deciphered cryptopuzzles to obtain disproportionately high revenues. If these ‘dishonest’ pools grow beyond an alarmingly low threshold, the decentralized nature of the currency faces a legitimate threat. Critics of the currency cite its intrinsic value as another reason for alarm and evidence that the meteoric rise in value is nothing but the rapid inflation of a bubble-an attack which is brushed off by enthusiasts as baseless, seeing that all currencies are assigned intrinsic value.
The accelerating appreciation is no surprise and the tendency of Bitcoin prices to violently oscillate is well known. Although this may be attractive to speculators, it is detrimental to the currency on the whole, as its widespread adoption is contingent on the faith of individuals and businesses to line their Bitcoin wallets without the fear of value evaporating overnight.
The future of Bitcoin then, seems to lie then within its ability to garner support from average individuals. Technical problems, like loopholes in security protocols, may be overcome by developers-but it is ultimately the backing of the public which shall determine its fate. Although illicit sites like Silk Road were a major factor in initially gaining this popularity among libertarian-minded netizens, the currency is probably better off after its demise. To the mainstream investor, its downfall was a sign that Bitcoin is distancing itself from its former reputation as a facilitator of illegal activity. More regulation, to ensure that the online exchange does not become a haven for money launderers, will be a further concession which governments will probably demand as a prerequisite for acceptance. The extent to which Bitcoin users are willing to make these concessions will shape the debate in time to come.
Whether or not Bitcoin will become a permanent feature of the financial landscape therefore still hangs in the balance and backers-myself included-have some substantial problems to address if they hope to solidify its presence. Nonetheless, I can say with relative ease that, at least for now, the wall is rather free from warning of biblical demise.