Bitcoin: a solution to crisis?

 


Times are tough for physical currencies – particularly for some. The euro crisis is on everyone’s lips, and recently China and Japan have abandoned the dollar in order to bolster their own currencies as much as possible.

What if the solution lies with bitcoin?

Just a quick recap for those of you who can’t remember: Bitcoin is a digital currency that was created back in 2009. Its key feature lies in its complete autonomy from banks and governments: in other words, its value can’t be altered or affected by external inflation.

From a technical point of view, bitcoin is closely linked to a single owner, and every purchase or transfer results in an automatic change of ownership: in short, transactions are irreversible. The obvious problem bitcoin faces – since it involves simple information – comes from the most banal of scams i.e. being copied and pasted, is overcome by strict encryption schemes – such as block chain – making this process absolutely safe.

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Bitcoin experienced considerable success during 2011 – when it hovered around the $30 mark – but then suddenly collapsed. As of February 2012 bitcoin was worth about 4 euros.

So what happened?

Benjamin Wallace wrote an in depth article for Wired, analyzing “the rise and fall” of this virtual economy. Initially the movement was driven by a group of authentic technology enthusiasts. A group made up more of open-source evangelists than tout court economists. Its take-off in the spring of 2011 – which was sudden and unexpected – was mainly due to the big hype that came from Forbes and Gawker.

During the summer and a little later, the pure and idealistic world of bitcoin immersed itself in the impure world’s reality: the assault of the masses on the digital money got itself caught up in a lot of practical problems. One in particular was how to keep one’s money safe? Other problems followed – for example, it became increasingly difficult to spend bitcoins, the number of viruses increased, other cyber attacks occurred – until the bubble finally burst.

Nowadays bitcoin owners have abandoned the idea of trying to create this alternative economy, and have limited themselves to holding on to their currency – ever less attractive to the markets. However, as Wallace concludes, “while people have stolen and cheated and abandoned the bitcoiners, the code has remained true.”

The strength of the new currency isn’t about what it currently stands for, but the idea itself. So its unhappy ending shouldn’t be seen as a reassuring indication to those who see it as an anti-crisis remedy – but the idea remains valid. Let’s see why.

Firstly, as previously stated, bitcoin in theory is immune to financial speculation: when thinking in terms of greater transactional transparency and fairness, it would therefore represent a giant step forward. At Chaos Communication Camp in Berlin, hacker Jeffrey Paul – in his talk on Financing the Revolution – tried to emphasize, using an array of technical details, all the benefits of an informational money reform.

In fact, someone went as far to link bitcoin economy to a type of specific ethics, with universal characteristics, with no intermediation, transparent and immanent – meaning anyone can access it, there’s no need for institutions or banks, the code is open source and the value isn’t dependent on external people but only by the those carrying out the transactions.

From this point of view, even an anarchist and a capitalist can both use bitcoin – simply because it’s a better solution – more equitable – than real money.

So, really if this currency were to “take off” – in other words if there were stores willing to accept it as a form of payment – a small revolution could begin.

Of course the problem is the enormous difficulty of this bootstrapping: digital collaboration is often a success in other situations, but when it came to creating a new economy – dealing with money, and the future of money itself – things got much more complicated.

Even if, in theory the virtual currency solution has many positive attributes, from a practical point of view it appears to be too big to be put into practice. At least for now.

 

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