It might seem unpopular to say it now but I once had hopes for Bitcoin. Anarchists and libertarians may predictably have been excited about the potential of a currency that was neither linked to government or bank manipulation, but I liked the idea of it because P2P (peer to peer) has the prospect of making finance fairer from the bottom up.
It might seem unpopular to say it now but I once had hopes for Bitcoin.
Anarchists and libertarians may predictably have been excited about the potential of a currency that was neither linked to government or bank manipulation, but I liked the idea of it because P2P (peer to peer) has the prospect of making finance fairer from the bottom up.
In February 2012, on the back of my enthusiasm, I asked Gavin Andresen, lead developer at Bitcoin, what this new currency could do for the unbanked? He told me:
“I’m not an expert on debt, but I do know that a lot of the ‘unbanked’ in the world deal mainly in cash … Maybe virtual pawn shops that take something electronic as collateral and lend you Bitcoins (I have no idea what the collateral might be). Maybe lending clubs where people pool their Bitcoins and redistribute them as a way to encourage savings. Probably something that will surprise me when it happens…”
I didn’t like the idea of virtual pawn shops (I wanted solutions, not more of the same), but taking the unbanked into the non-cash world was appealing (though hardly original – look at pre-paid card technology or credit union pre-paid accounts [pdf]).
Then looking at Bitcoin Magazine the reasons why there are no P2P lending clubs, facilitated with Bitcoin, is because their community is somewhat different to the community who benefit from peer lending sites. Zopa, for example, deals in whatever currency its users deal in and serves a wider range of people.
The currency was never going to help the unbanked, the real life socio-economic conditions were. My original enthusiasm was quashed.
Furthermore, there are other problems that face Bitcoin. As Tyler Durden for Zero Hedge said on Wednesday: “In the last 48 hours, the price of the virtual currency has surged by 50 per cent from $94 to $141”.
This might make you a fortune… or, more likely, this is a ticking timebomb, a bubble that is about to explode any moment (indeed that explosion may have taken place by now).
Maybe Bitcoin has the capacity to fend for itself. Maybe there will be a way for Bitcoin participants to collectively trigger hyperdeflation checks, whatever that will look like. Can this happen? Probably not, according to some.
While Satoshi Nakamoto, the founder of Bitcoin, whose real identity is not known, says there is a great big difference between Bitcoin and fiat currency (money that derives its value from government writ), others disagree profusely. Chris Cook, for example, a senior fellow at UCL’s Institute for Security and Resilience Studies and advocate of P2P finance platforms, put it this way in a recent debate:
“Bitcoin has no utility … but it does have – like all use-less but trusted currencies, like gold, bitcoin and fiat – a subjective value insofar as people trust it. Gold is essentially trust in solid form. Since it has zero utility (use value over time), the intrinsic value of bitcoin is zero. It is therefore in a bubble, and will in due course revert to its intrinsic value once people lose faith in it – which will occur when the hype ends and the bubble is spiked as the smart money exits and the dumb money loses.”
Though Bitcoin does elude the trappings of government regulation (others say that Bitcoin is simply debt-free fiat money), it is still subject to the same real-life issues of value and exchange and is therefore related to fiat currency in this way.
But in the end, if people start to lose faith in it, which presumably is happening right now as the prospect of an exploded bubble gets stronger, the Bitcoin hype will just end and people will walk away.
Even if after all of this you’re convinced of the staying power of Bitcoin, the conclusion of a recent essay by the Wine and Cheese Appreciation Society nails it:
“Systematic enmity of interests, exclusion from social wealth, subjection of everything to capitalist growth – that is what an economy looks like where exchange, money and private property determine production and consumption. This does not change if the substance of money is gold or Bitcoin. This society produces poverty not because there is credit money but because it is based on exchange, money and economic growth. The libertarians might not mind this poverty, but those who have discovered Bitcoin as a new alternative to the status quo perhaps should.”
Conclusively, Bitcoin doesn’t help the unbanked nor does it really escape the trappings of an economy based on exchange, money and growth. Gavin Andresen told The New Yorker recently: “Bitcoin is an experiment: only invest time or money you can afford to lose”. I ask why bother?Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.