Launched in 2009, the digital decentralised currency was previously the domain of hackers, online anarchists and very specific kinds of deals. In light of the events in Cyprus, the existence of a currency that no government or higher authority can freeze, limit or confiscate became very appealing indeed.
Bitcoin was introduced in 2009 by ‘Satoshi Nakamoto’. An alias, Nakamonto was only ever visible through forums and carefully selected contacts, and disappeared altogether in 2011. Whoever the mysterious man is or was, the structure he left behind was to become the fastest growing currency in the world, smashing through the fabled $2bn mark earlier this week.
The crypto currency has no central controlling organisation – instead it operates on a peer-to-peer network, with bitcoin ‘miners’ (see below) providing, controlling and tracking coinage and transactions. It is also a finite system, as opposed to our own inflation adjusted currency, with new coins to be steadily released until the 21 million mark in 2140.
Early uptake focused on the anonymous nature of the currency, every coin transaction is tracked by the Bitcoin network but is entirely untraceable. For this reason it has gained notoriety on the infamous online market place Silk Road as well as other online destinations of armoury, gambling and vice. However more recently a number of high-profile online businesses have started accepting the coins; among them WordPress, Reddit and Mega, highlighting a move towards a more accepted use.
The current interest in Bitcoin has less to do with the success or security of the currency, and more with the backlash against who and where we currently entrust our money. Long gone are the days of blind or even begrudging faith in financial institutions, and financial institutions are steadily distancing themselves from ‘traditional banking values’. The recent breakdowns in global economies, and shocking response from government have some rethinking the once radical decision of controlling and governing their own money.
Aside from fear, innovations in the payment space are enabling consumer’s decision to take back control of their coin. Products like Ping-it, Paypal and Square are giving anyone the tools to become a vendor, and the new financial services such as Movenbank and Simple are using customer’s own data to educate them about their fiscal habits. We are rapidly becoming a cashless society. Virtual wallets, contactless payments and increasingly sophisticated online banking are shifting the mindset from dealing with money as a physical object exchange to a simple transaction. It is not a far stretch of the imagination to move the entire financial process and structure to a virtual environment.
So is it viable? Bitcoin has grown from a value of 3p per coin in 2010 to peaks of around £150, and appears to be a fame driven phenomenon, correlating almost directly with the coverage it garners. However without central organization, the value fluctuates to an unpredictable extent, as we have seen in the recent acute crash.
The security risks, as for many virtual enterprises, are numerous. Though coin encryption tools means that double spending is near impossible, the anonymity means hacking and theft is just as impossible to trace. Whilst this is an issue that would have been effected by SOPA, it appears the US government may be looking regulate, rather than prohibit it.
The values underpinning Bitcoin are poised to connect with any person who has ever questioned their bank or government’s fiscal values. Economic fear, banking paranoia and increasing comfort in a virtual setting are all driving people to consider financial alternatives, from the mundane to the radical.
Bitcoin is too unstable to even consider taking on banking, at least for now. However, it provides the opportunity rethink how we interact with money and how much control we are willing to give to those with charge of housing it. Bankers take note; the people have spoken.