In the Friday edition of the Collegian, Quinn Scahill made the case for Bitcoins as the currency of the future. It was an interesting editorial, but Mr. Scahill seems to have bought up in the recent hype of Bitcoin. I have been following Bitcoins for nearly two years now, and I don’t think he quite understands the issues of Bitcoin that are going to stop any sort of widespread adoption.
If we accept that Bitcoin even fits the definition of a currency, then a piss-poor currency it is. A currency’s main strength is its stability: take the US dollar. At any given day at any given time, you can expect that the buying power of a one dollar bill is going to be a about the same. It does fluctuate, but not greatly. As of my writing this piece, Bitcoins are going for about $140 dollars per coin from about two years ago when they were going for mere pennies, and during that rise there have been a number of crashes in the price of Bitcoins. It is extremely volatile, which is terrible for a medium of exchange as you can’t trust that a Bitcoin will be worth the same as when you got it. That alone is going to stop most legitimate businesses from accepting Bitcoins outside a few quirky outfits.
And this isn’t even going into the fact that currencies are usually based on something, whether it be precious metals or the economic power of issuer. Bitcoins are based on the process cycles of a video card. If that doesn’t sound like the most transient thing imaginable, than I don’t know what to tell you. And there’s a hilarious irony here in that a lot of supporters of Bitcoins rail against the evils of fiat money as being transient itself, fiat money being currency based on economic power. Well I’ve got to say, the United States economic power is a lot more meaningful “thing” than how well a computer can run Bioshock Infinite.
The crux of the problem is that Bitcoins don’t follow the model of a currency, what they do follow the model is that of a commodity. For those who are unaware, the field of economics defines a commodity as something that is sold to fill the need or want of society. In Bitcoin’s case, that would be illegal drugs and child pornography, which proponents of Bitcoin love to downplay from some strange reason. Commodities make poor mediums of exchange as you do have to convert to a currency of some sort in order to make the exchange happen. If you don’t what you have is the barter system, which can work for individuals, but not on any sort of macro economic level. We actually see this commodity behavior with those that accept Bitcoins as payment: the price in BTC is never divorced from the price in USD, which has a lot to do with its volatility.
Now Mr. Scahill makes an interesting claim, that to steal Bitcoins is a “near-impossibility.” This isn’t true. Recently Bitcoin holding site Instawallet shut down after hackers had accessed its servers and stolen Bitcoins from account holders. And in June of 2011, the same thing had happened to MtGox, the primary Bitcoin exchange, causing a catastrophic collapse in Bitcoin prices. The cryptography behind Bitcoin is anything but bulletproof, and that again is an issue for Bitcoin as both a commodity and a currency.
Now, what I wont say is that crypto-currency won’t be thing in the future: I can see people living out their cyberpunk fantasy using some sort of data-based money. However, it’s going to have to be a lot more secure and better thought out than Bitcoin.
Neil Griffith is a junior sociology major