Digital currency has become a fascinating and frightening reality in international high finance. As fluctuating economies create increasing anxiety among investors regarding the solvency of national financial institutions, the concept of a virtual currency, insulated against inflation, may seem like a perfect solution to many. Bitcoin however, may be sitting on a bubble.
Bitcoin, one of the most infamous new forms of these digital mediums of exchange, is relatively young; introduced only in 2009 by Satoshi Nakamoto. For all of the perceived qualities which Bitcoin possesses however, the currency has been marred by both its associations and its notorious volatility. A situation which has led many economists to brand Bitcoin a “bubble currency.” Examining the Bitcoin bubble itself reveals both the gleaming advantages of this neophyte lucre – as well as the possible empty, insubstantial impetus at its core. Some have been lead to wonder if is it little more than a glorified, hi-tech ponzi scheme, or the wave of the future. Bitcoin itself wants to be our digital dough destiny.
Bitcoin possesses some unique advantages over other digital currency. Specifically, the method of creating the currency doubles as a means of self-regulation, as a “block chain” establishes the ownership of each bitcoin at each point along its virtual lifespan. Imagine a dollar bill with the signature of each owner who had ever tucked it into his or her wallet, and you have an idea of how novel and holistic this aspect of the self-tracking currency, really is.
Bitcoins are created in a process known as “mining,” which in essence rewards the participants who record and verify bitcoin payments with fees for each transaction, as well as newly “minted” bitcoins. Again, the novelty of the currency’s regulation being part and parcel in its creation, is inherent.
Unfortunately, the very digital nature of the bitcoin has opened it to unique forms of clandestine manipulation. Though ingeniously double-secured as a “crypto-currency,” bitcoin was nonetheless insecure enough to essentially create a new form of online counterfeiting. Tech-savvy hackers employed “botnets” to covertly mine bitcoins, almost as soon as they were announced.
This was not a singular occurrence, nor the only form of technological problem that plagued the fledgling currency: a technical glitch in a flawed version of Bitcoin client software, in March of 2013, resulted in the temporary creation of a forked Bitcoin network. This induced mass self-offs, due to investor anxiety. The software error had duplicated the network temporarily, making matters exponentially worse when investors were locked out of converting their bitcoins back into their requisite, fiat currencies.
The fluctuation in value for Bitcoin which this catastrophe created, was only one of the steep drop-offs in appreciation which led to the highly volatile currency being dubbed “Bubblecious.” The currency’s value has fluctuated from as low as .30 cents, to as high as 32 dollars, for a single bitcoin. As expected, bitcoin has been employed much more aggressively by speculators, than as an outright commercial medium of exchange. Speculators are obviously profiting from the ebb and flow of value, like they do any other currency.
Perhaps the darkest shadow cast over Bitcoin’s profile has been its association with the nefarious “Silk Road.” The online black market which was shut down by the FBI for furthering the sales of illicit substances such as heroin and cocaine. Bitcoin’s utility was actively and eagerly made use of in money laundering manipulations as well, leading to the Jan. 26, 2013, arrest of Bitcoin Foundation vice chairman, Charlie Shrem.
These intimations of covert unscrupulousness and outright criminality, have left their onus on Bitcoin’s reputation. No doubt, the roller-coaster ride they’ve been on has turned away many conservative economists, who view the Bitcoin Bubble in necessarily pessimistic terms.
However, Bitcoin’s worldwide acceptance is expanding; perhaps with one step forward to every two steps back. Bitcoin is all but prohibited in China, but has been accepted as payment by at least one accredited university. It is actually being exchanged for coffee and pastries in Netherlands cafes. Perhaps one day, this most bubblicious of digital currencies can be used to purchase a Vietnamese bubble tea. Such a meta association seems fitting for a next-gen currency.
As things stand, Bitcoin’s volubility and impermanence of value make the “on a bubble” description most apt. Still, its raw potential and self-securing nature, seem to promise that this bubble may be harder to burst than most.
By Hamilton Tolson
Citizen Journalism is the Future