As the price of bitcoin continues to climb, so do the number and volume of opinions on the technology. Is bitcoin really in a bubble? Will the currencies split? Is this still just a niche fad or will it find real utility in the real world?
While these are all valid questions, it’s also important to think of the value of bitcoin that exists outside of it’s cost. Marc Hochstein argues that bitcoin’s decentralized nature is its strongest asset, allowing for controversial people or organizations to exist without political interference in their ability to make financial transactions.
I stand by my old headline: “Lightning fast, dirt cheap: bitcoin shows what banking could be.” (Emphasis added here.) Whether bitcoin could sustain the low latency and low fees of the early days was beside the point. Surely centralized systems — which don’t require computers distributed across the globe to reach consensus on the state of a ledger — should allow real-time, low-cost payments in the 21st century. And perhaps bitcoin helped push that towards reality. Five years ago, such a goal was scarcely on the horizon in the U.S. This was years before Zelle or the Federal Reserve’s Faster Payments Task Force. The automated clearing house didn’t even provide ubiquitous same-day settlement between bank accounts then.
Nevertheless, it’s fair to say that like a blindfolded person feeling the trunk of an elephant and thinking it’s a snake, I didn’t quite have the big picture in 2012. The most important thing about bitcoin, the characteristic the gives the lie to the oft-repeated claim that it’s “a solution in search of a problem,” is not the speed or the cost of transactions. Nor is it the pseudonymous nature of bitcoin addresses, a privacy feature that voyeurs, gossips and stalking exes (as well as law enforcement) can circumvent by analyzing the flow of funds on the public blockchain. It’s certainly not the exchange rate with the dollar, which has had a bumpy ride but recently hit another all-time high of $3,000. (By the way, if you’re a consumer and this is the first thing you’ve ever read about bitcoin, FOR THE LOVE OF GOD DO NOT INVEST MORE THAN YOU CAN AFFORD TO LOSE.)
No, the key thing about bitcoin is its censorship-resistance — something that I only obliquely touched on in my original post, when I mentioned that the currency could be used to purchase drugs on the dark web or send donations to WikiLeaks, which was then operating under a blockade by the major payment networks.
Money and finance are inherently political. In a world where Big Banks are bailed out by the federal government and whistle blowers are blocked from using banks to conduct business at the behest of that same government, bitcoin offers a solution that separates politics from financial affairs. By design it can not be regulated by any one centralized body with its own agenda, and thus exists as a solution for entities that may fear undue influence in their financial affairs.
Like anything, this solution also has a darker side to it, in that the same anonymity that may protect activists or whistle blowers can also serve to enable terrorists or other criminals. Currently there doesn’t seem to be a clear solution to policing one type of behavior while enabling another, but that is a challenge the currency will have to face and address likely sooner than it is prepared to. As they say, there are two sides to every (bit)coin.
As cryptocurrency develops, blockchain technology will also advance, opening up possibilities for several other industries. If you’re interested in collaborating with a group of passionate technologists on creating innovative blockchain applications, sign up for updates on VLab hackathons here