Bitcoin. Yea or Nay?

Is the shutdown of Mt. Gox, one of the major Bitcoin Exchanges, signifying the doom day of Bitcoin?

No. Although $400 million worth of bitcoins, which accounts for 6% of all existing bitcoins, have lost as a result of the heist on the exchange, bitcoin is far from being a failed attempt. As an up and coming cyber currency, bitcoin is going through the roughness during its infancy of being a “cyber product” and being a “currency” at the same time.

Like every other cyber product, flaws and bugs are inevitable. Therefore Mt. Gox’s incident is not completely unforeseeable. Sooner or later, another bug will be exposed, some people will be hurt, some agency will lose its reputation, and some superhero will come to save the world. The release-bug-fix-release loop of software development has defined the imperfectness nature of bitcoin from day 0.

Bitcoin as a currency, although rebellious in nature and virtual in existence, is still exposed to the risk of being stolen. In fact, the $200 million heist is not the biggest heist on currencies. Beside no firearms involved and nearly untraceable, I don’t see the Mt. Gox meltdown any different from other bank robberies.

So, does Bitcoin have no problem at all?

Absolutely not. When it comes to security and trustworthiness, Bitcoin is much inferior to the dollar bills. In terms of security, in good days, bitcoin is safe because it’s untraceable. When things go south, bitcoin is also dangerous because it’s untraceable. The double-edged sword that is information privacy makes bitcoin a good choice for trading without the big brother’s watch, and a worst option ever for people who want to secure their money.

In terms of trustworthiness, since bitcoin is decentralized by design, there’s no institution backing it up. Columnist Megan McArdle explained this very clear in her article:

“… as yet, no currency exchange (for bitcoin) like the ones we use for regular currency — backed by large institutions that can be sued if things go wrong. … for folks in the regular old economy, that’s a problem. It’s hard to get enthusiastic about saving in a system where hundreds of thousands of dollars can disappear overnight, leaving you with no recourse.”

Now, what’s bitcoin’s future?

I’ll argue that bitcoin will continue to exist, but not as a full-fledged currency.       On one hand, a currency must be durable, divisible, transportable and uncounterfeitable. Although Bitcoin satisfies the latter three, it fails to be durable in terms of retaining the same value over time that is the most important characteristic of money. On the other hand, even if someday bitcoin managed to stabilize its price-to-dollar and became a reliable currency, it’ll receive enormous pressure from the government. The better it does at evading governments’ surveillance, the harder governments try to shut it down. At the end of the day, the government has control over the financial tools and it’s an irremovable part in the ecosystem. Bitcoin can’t achieve its goal of “decentralization” without fundamentally alter the economy system and take the government out of the equations. Meanwhile, in order to be strong enough to fight with the government, it has to be accepted by the vast majority, and that’s only achievable after the removal of the government. Simply put, Bitcoin can’t beat the government without first beating the government. This paradox has decided the doomed failure between Bitcoin and governments.

9 thoughts on “Bitcoin. Yea or Nay?

  1. josimon

    I believe our economy will actually go through a transition stage possibly in 20 years or so where the government will realize that Bitcoin could be the best option, or where they are forced to use Bitcoin. There are many factors that can occur during the entirety of the process. I believe the problem that has happened with Mt. Gox has set Bitcoin back another 5 years though. People expect this type of currency system to be perfect this day in age.

  2. pranavrk

    You make a very interesting point. Bitcoin has some issues which is understandable given that it’s only been in existence for a few years, but the type of role it will take on will determine how it interacts with governments. If people start using it as a tax-haven due to the fact that many transactions are untraceable, then it may look bad. If it serves as a sort of backup or exchange rate tool as talked about in class, the government might be more than happy to interact with it.

  3. cjamesj

    I think this is the an interesting topic. I think that bitcoin needs more regulation before it can become an official currency. As mentioned above, if bitcoin is untraceable money very well may be moved into it or handed off to avoid tax deduction. Although some people avoid taxes with physical currency, it would still be easier to do with the electronic currency. I see a form of electronic currency being the way of the future but I think it will be developed by the government and not a third party.

  4. nickcoll

    Bitcoin is a really interesting idea but I believe its going to become something more akin to gold or commodities than a fully fledged currency. I just don’t see multiple countries backing it due to the fact that it would limit their own sovereignty, which I don’t see countries doing anytime soon. I think once all the bugs get removed from bitcoin, governments will create their own digital currency influenced by Bitcoins.

  5. gaochen

    Your points on Bitcoin are very interesting. The characters of currency as well as cyber product distinguished it from traditional currency. Yeah, in the future it will continue to serve as electronic currency if its security problem could be fixed.

  6. mdbold

    I think that Bitcoin will always have a stabilization problem. Bitcoins just have no intrinsic value. And there’s no reason to think that those who control their supply can keep them safer than a government or bank could keep money.

  7. bdinger

    I have been of the opinion the whole time, that regardless of whichever cryptocurrency we are talking about, their longest lasting impact will be due to the fact that they prepare people mentally for a government issued ecurrency.

  8. enjar

    Very interesting article I must say.
    I think it will take quite some time for people to be sure about their money in bits if bit coin somehow gets used. I don’t think bit coin is foreseeable in near future even though it has a wave of it because, as the article says, the government can’t do this

  9. Emma Zhang

    I especially like your argument about the paradox of Bitcoin‘s as a decentralized currency. If Bitcoin were to meet the durable criterion you specified, it will need a creditable institution( like today’s government) as the “lender of the last resort”. But then the promise of being able to evade government surveillance will be hard to fulfill. Unless we can figure out a way for a currency system to work without the government, the Bitcoin legend might gone with the wind later in time.

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