Sunday, June 12, 2011

Bitcoin - the newest e-money, internet threat and speculative bubble - all in one?

The idea of untraceable, privately controlled electronic currency is not new. Remember Kevin Kelley made a big deal about it in "Out of control" (chapter 12), his breathlessly enthusiastic book on the accelerating digital age published back in 1995:
The nature of e-money -- invisible, lightning quick, cheap, globally
penetrating -- is likely to produce indelible underground economies, a
worry way beyond mere laundering of drug money. In the net-world, where
a global economy is rooted in distributed knowledge and decentralized
control, e-money is not an option but a necessity. Para-currencies will
flourish as the network culture flourishes. An electronic matrix is
destined to be an outback of hardy underwire economies. The Net is so
amicable to electronic cash that once established interstitially in the
Net's links, e-money is probably ineradicable.
Kelley didn`t discuss Bitcoin, as even a futurist would be hard pressed to discuss by name something that would be developed 13 years later. But it`s the same thing: Untraceable, outside government control, loved by libertarians and kind of geeky. A good description is here, a recent "oh-my-god-they-sell-drugs-with-this" article from wired here, and a very bullish "this-is-where-i´m-gonna-place-all-my-savings" post on the appreciation trend of the bitcoin here.
Off the cuff, my guess would be that a simple, safe on-line currency that was as easy to use as cash would be quite useful. If you`re buying some one-off good or service online, buying a piece of software directly from the vendor, want to leave something in a blogger´s tip jar, etc. - rather than using a number of different services (visa, paypal, google checkout, tipjar etc) a simple e-cash would be nice. Based on my very cursory look, bitcoin is not quite there. Most importantly, it seems like a chore to get money into and out of bitcoins (partly because paypal, mastercard and visa don`t want to help). If they fix this problem, there would also seem to be a user interface issue: They need to make this integrated into browsers or some ubiquitous tool (facebook? google account?) so that it truly became as easy as pulling a bill out of your pocket. As it stands, my guess would be that it might keep appreciating for a while as gold-standard devotees and Ayn Rand fans discover it, there may be a slight influx of blackmarket funds, and the resulting appreciation may attract people who see it as an investment vehicle. Unless "currency exchange" becomes easier (so you can get the money into and out of the real world) and usability improves, I don´t quite see why this would become big. And if you can´t get your money out without a lot of bother (it might even get worse if governments see the money laundering issue as a problem) - then the investment aspect of it is going to suffer as well.

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