Bitcoin: The Emperor's new currency?

08 September 2017

This week I have been amazed at the amount of people who have asked me about Bitcoin. “Are you involved?”; “Would you be a Bitcoin miner?”; “What’s a good wallet for Bitcoin?”. Entirely out of the blue I think I’ve had about 5 different unconnected conversations with people suddenly showing an interest in the cyber-currency. But why now? And why at all?

I do not profess to hold a deep understanding of economics or financial affairs. From my simple stand point; currency is something I don’t have enough of, and generally use to acquire goods that I wish to invest in. At its simplest form, the coin or bank note that is involved has some sort of inscription on it that gives it a value that relates to Gold, which is tangible. This I understand. I also get that multiple countries have diverse types of currency, all of which have variable values in exchange trading. Most however, are largely based around the same premise of Gold; (or similar), a tangible value.

Bitcoin however, completely befuddles me. You trade your Gold promissory notes for a digital reference code that is held in a virtual wallet in the Tinterweb. With that transaction comes no commitment, no security, nothing tangible and you trust that at some stage you can manifest this digital code into something of value. Apparently, there are 900 crypto-currencies you can purchase, but Bitcoin is by far the biggest and probably the most notorious because of its association with untraceable transactions and the criminal underworld.

My initial interactions this week however caught me off guard, because I’d assumed that Bitcoin trading was the reserve of drug dealers and people I wouldn’t usually converse with. When your co-workers and trusted clients all independently ask you for your opinion, something has clearly changed. To my knowledge, none of these guys run Dark Web “specialist” sites, so this is maybe the first incarnation of Bitcoin becoming mainstream?

The conversations themselves were quite interesting. My co-workers were discussing the increase in Bitcoin exchange value over time and how buying some could be a sound financial investment. The issue they had is they didn’t know how to safely do it. Bitcoin wallets are freely available, but with an association with some of the more dubious traders in the world, would you really want to enter your card details for a made-up virtual potentially risky digital intangible thing? It prompted some interesting debate. I believe they worked it out in the end.

The other conversations were surrounding Bitcoin Mining as a business opportunity. By investing an amount in some specialist technology, you can connect to the Bitcoin Ledger and help with the ever-increasing overhead of verifying the transactions within the Blockchain (the underlying technology that supports most cryptocurrency). As a reward, you get allocated some Bitcoin as payment. Mind blowing.

My point is thus. If you are trading in an entirely intangible currency, what asset value are you actually acquiring? My wife, when discussing it with her, drew a parallel to Virtual Real Estate in Second Life which I thought was brilliant. You can pay literally millions of pounds for a few thousand pixels in a made-up world that runs on the internet. Its only value is driven by the number of people who are competing for those pixels. Conversation and exposure drives the value up, but it’s the only thing that is driving the value because there is no tangible benefit to owning the asset – especially if Second Life switched off all their IT and decided to stop projecting a second virtual world.

So, should businesses be considering the potential that Bitcoin will become the defacto payment system for future transactions? Hard currency in its current form does seem to be outmoded, and transactions based around contactless payments and BACS transfers have been running successfully for decades with no gold changing hands. Maybe the next logical step is to get rid of any tangible value to currency whatsoever, and trust the “chain” of unregulated ledger transactions as the method of measuring value in society. Maybe I’m a luddite but I think this is awful.

I feel compelled to go and investigate because the emperor’s new currency could gain sufficient momentum to become a “thing”. Allegedly the value of a Bitcoin has gone from $2 to over $5000 in the relatively few years it’s been around. And if it does become a “thing”, it has all sorts of technology implications from “what happens if the technology gets hacked?” to “how do you safely trade in something that is fundamentally Dark Web based?”.

I’m sure there are many conspiracy theorists out there who can prove that our currency system is one where banks print paper with no gold to support it. In the real world do I stand the same chance of seeing the gold my wrinkly tenner represents as seeing the digital widget that Bitcoin represents? I can’t help but think that holding an old wrinkly tenner is a lot more satisfying than knowing my digital wallet has some numbers in it.

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