Possible Beginning of the End of the Bitcoin Era?

Last week, Charles Shrem, a large Bitcoin tycoon, was put under house arrest. He was charged with money laundering among other various crimes. He is allegedly connected with a drug scheme that involved Bitcoin as the method of payment. This currency has been booming in recent times, but the decision of Shrem’s trial could have an impact on the future of Bitcoins. Shrem is the founder of a website that was widely used in the exchange of the online currency. According to the Wall Street Journal, Shrem is optimistic about Bitcoin’s future despite his arrest.

To add to the woes of the Bitcoin culture, Apple has been taking down all of the applications on its App Store that allow users to buy and sell Bitcoins. The most recent application to be taken down is called BlockChain. A New York Times Article mentions that the chief executive, Nicolas Cary, of the application describes Apple’s actions as “building a walled garden to interfere with innovation”. (Cary)

Interestingly enough, Bitcoins have inspired the concepts of electronic currencies. Professor Miles Kimball of the University of Michigan wrote his first article for Slate about ending the use of paper currency. He argues that Bitcoin is a great display of electronic money, but it is dubious that governments will give up their control over currency. By adopting an electronic currency, the government would be able to eliminate the zero lower-bound. Professor Kimball has been an advocate of this for a while now.

Bitcoins are a novelty within themselves. Online currency seems to be futuristic. Electronic transactions are easier and faster. The downside is that Bitcoins can be used for illegal transactions. This is because they are unregulated, therefore they are not being traced by a governing entity. It is not illegal to own Bitcoins because there are ways to purchase many legal items and services with them. The government cannot arrest someone for exchanging their dollars for Bitcoins. It would be impossible to prove that a person bought Bitcoins with the intent to be a part of an illegal transaction.

The United States adopting an electronic currency has its ups and downs. Transactions can be made more quickly. We see this with the use of credit and debit cards. A swipe and a signature are enough to make a payment. Another positive to electronic money is that the government can trace money even more than it can now. Money used for illegal transactions is almost always done in paper form because it cannot be tracked. Electronic money would allow the government to know what every dollar, every day, goes towards, thus curbing illegal activity. Professor Kimball is also an advocate of negative interest rates, which are only possible with electronic money. This is where I believe that the downside lies. With negative interest rates, people will be losing money every day unless they spend it. There would be no incentive to save. Furthermore, there would be no incentive to lend money. Creditors would cease to exist if they were to be paid back less money than they loaned.

3 thoughts on “Possible Beginning of the End of the Bitcoin Era?

  1. fanglue

    The discussion on Professor Kimball’s idea is impressive. If there is a negative interest rate, then no one will want to save and there is no incentive to lend. The electronic currency has a lot of ups and downs and if it some day becomes a substitute of paper money, more regulations should be implemented. I personally don’t like the situation where things all become virtualized. Therefore I don’t want to see that paper money disappears.

  2. agolicz

    Although Bitcoin seems like a really exciting new currency, I keep wondering what would happen if someone figures out how to hack the algorithm and print their own Bitcoins. It seems that many trust the currency for the ability to use it anonymously and for its fixed supply of coins to be mined. Seeing how lucrative the trade is becoming, and the sophistication of many programmers around the world, there would definitely be the incentive, and possibly the capability to hack the coins and “print” new ones. This scenario obviously hinges on a few factors, namely 1) whether or not it’s possible to hack the currency and print new coins, 2) when this would occur, and 3) would anyone notice the supply was increasing. If this ever occurred, I’d be willing to bet that many would lose faith in the system (especially without Bitcoin regulators around to ensure its safety and efficacy).

  3. psseo

    It’s very interesting argument. This blog post enhances my understanding of electronic money. But I think that negative interese rates scheme is not for normal economic situations. lowering interest rates below zero may only be justified in extremely shrinked economic activity unless it will surely cause economy overheat or malfunction. I think nobody believe that negative interest rates is normal.

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