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Bitcoin and the Future of Crypto-Currency

creditcardBreak out your cryptographically-signed digital wallet and lay your bets: Where is Bitcoin going?

As perhaps the best-known—but certainly not the sole—crypto-currency around, Bitcoin has certainly seen its share of media coverage in recent months. And like other hot-button subjects, Bitcoin seems to elicit strong reactions both for and against it. Some view it as a universal currency, free from transaction fees and government interference. Others view it as a vehicle for organized crime and a threat to the sovereignty of nations. As is often the case, the truth probably lies somewhere in the middle.

Looking at the "pro" side of the equation, there are many advantages to Bitcoin. Unlike the US dollar (or any other national currency), Bitcoin is not a flat currency; there is no central regulatory authority that can simply "print more Bitcoin," when needed. There is a "mining" process to generate more, but that will eventually exhaust the currency’s finite supply.. It cuts out the "middle man"—banks and related institutions—with lower, or in some cases, nonexistent, transaction fees. . And, of course, it provides anonymity, allowing buyers and sellers to remain unknown  if they so choose. Major retailers now accept bitcoin.

Many of these advantages are also the currency’s problems. Skeptics point to Mt. Gox, a Bitcoin currency exchange in Japan that lost hundreds of millions of dollars worth ofthe crypto-currency earlier this year. Gox held a significant percentage—in double digits—of all Bitcoins in existence. Bitcoin is unregulated, and so are the exchangesNoone insures Bitcoin and no government has issued any guarantees to its value. So there is nothing you can do if your Bitcoins are stolen or lost.

Speculation is the dark side of Bitcoin’s hedge against natural inflation.. There are small-scale Bitcoin "mining" enterprisesand entire hedge funds dedicated to speculating on the rise and fall of this unregulated currency. And the anonymity it provides can also be used for illegal purchases of products like drugs or arms.

So, what is the future of Bitcoin? Ultimately, Bitcoin has provided a real-world test case for crypto-currency, and in that, it has been wildly successful. It's clear that crypto-currency is here to stay. However, once the market settles and the public has chosen a preferred crypto-currency "brand," there's no guarantee that currency of choice will be Bitcoin. Major banks — those "middlemen" that Bitcoin seeks to circumvent—have a very big cache of trust among the general public. There may be a vocal few who don’t like them, but they represent a trusted brand for the average person. These banks are already working on their own crypto-currency solutions that will retain many of the advantages of Bitcoin (but likely not the anonymity). It's only a matter of time before the public has the opportunity to choose between a crypto-currency from one of these major brands and Bitcoin...

If history is any teacher, we already know who is going to win.

Posted on September 23, 2014

John Linkous

by John Linkous

Technology Advisor

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