The end of sterling?

 ‘Bitcoin’ could signal end to cash. Photo: Hitthatswitch

‘Bitcoin’ could signal end to cash. Photo: Hitthatswitch

What do alpaca socks, poker chips and pet food have in common? Answer: they can all be purchased with Bitcoin, a monetary unit within a digital economy that has no cash, cards, vaults, banks or governments. The premise is simple: after acquiring Bitcoins either through exchange sites, or by helping out the network, users are able to exchange Bitcoins, which then can be spent on goods or services, or saved up within a virtual piggybank.

Existing within a virtual economy, Bitcoin boasts a number of unique advantages. Transaction fees are extraordinarily low. The algorithms are purportedly more complex than those used by online banking sites. As a virtual economy, Bitcoin can evade tax and tracking of expenditure. It’s a peculiar product of a peculiar age, digital money for an increasingly digitalised world. It intensifies the blurring between ‘real’ and ‘virtual’ money. After all, our coins and our cash are intrinsically worthless, merely acting as physical signifiers for a collection of numbers on a screen. The premise behind Bitcoin is essentially the same, simply without the tangible item, such as a bill or coin.

While the notion of a completely virtual economy is more likely to provoke puzzlement than panic, the implications of it are immense. It is governed by its users, a network made of millions of computers around the world in which money exists as strings of codes. It is the world’s first international, wholly digital currency. It is completely decentralised.

With Bitcoin, control over a currency does not belong to a single state. A recent article speculates that Bitcoin may well be ‘the most dangerous technological project since the internet itself’, a grass-roots, steadily growing movement that governments should be extremely anxious over. It is easy to see why. There is a finite number of Bitcoins – after a certain point (21 million) more cannot be created. The value of the Bitcoin is entirely dependent on its users (a seductive idea for anyone who has a distrust of the governmental monopoly over their currency).

The existence of Bitcoin forces us to consider some fundamental and compelling questions. What happens if we introduce a competing currency into a country? Would it be dangerous to do so? Should a centralised state body have sole authority over money, or should we be able to determine the course of currency for ourselves?

At the moment, Bitcoin will not likely become the dominant form of currency. It will take time for the wider public to adopt such a foreign notion, but this digital currency is fascinating in what it may indicate for the future: a possible evolution in economy, a shift from a centuries-old system into something strange and new with the potential to radically overhaul our conceptions of political economy.

3 comments

  1. Just understanding what money is trips up most people. Hundreds of years of western civilization might lead you to believe money needs to be controlled and backed by a Government or tied to a commodity. What is money? Here are some of the qualities I think make money useful as a means of exchange. Shared trust in the value of the money. Scarce and limited supply or limited ability to control supply. Light weight, compact, convenient to trade. Fungible. Divisible. Robust against attack or competition. Most modern money only has the above qualities because they are enforced by Government. Bitcoin has these qualities by protocol and design.

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  2. 4 Jun ’11 at 1:06 pm

    Single Player

    With the amount of hacking, phishing and scamming that takes place over the internet – the recent PSN fiasco being a good example – not to mention the bloody-mindedness of many computer systems I’ve dealt with, I worry about the wisdom of actually basing a whole financial system on an entirely online currency.

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  3. 4 Jun ’11 at 8:49 pm

    Multi Player

    Probably worth looking at what some clever people are saying about this:

    http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-idea

    “Do. Not. Buy. These.”

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