Bitcoin's life-or-death moment
- 25 February 2014
- From the section Business
Like many, I am gripped by the concept of Bitcoin.
I am not talking about the value of the individual bits of the new virtual currency, which has had a somewhat volatile history and is currently spiralling down.
What excites is the development, by Bitcoin enthusiasts, known as miners, of a super-efficient money transmission network on the internet, that bypasses the official banking and money transmission systems - or at least it is a hermetically sealed monetary world until holders of the virtual currency want to buy a hamburger or motor car and endeavour to convert their Bitcoins into dollars, pounds or other forms of legal tender.
However, Bitcoin probably represents the first seriously existential threat to conventional banks, burdened with their massive running costs, in living memory.
In theory, at least, Bitcoin is their Amazon.
Bitcoin also poses something of an issue for central banks like the Bank of England or US Federal Reserve, which appear to have no ability to influence the value of Bitcoins. So Bitcoin represents a challenge to their duties of monetary stewardship.
And it is not at all clear whether the writ of financial regulators runs to the Bitcoin world.
So depending on your point of view, Bitcoin is either a wonderfully liberating new financial system, freed of the costs and poisonous history of the old banking and monetary world, or it is the dangerous and wacky Wild West, where law-abiding folk should fear to tread.
Which is it? Well we may be about to find out, following the disappearance from the internet of MtGox, one of the biggest Bitcoin exchanges - amidst rumours of all sorts of shenanigans and allegations that vast quantities of the currency have gone walkies.
The point is that Bitcoin's strength - that it has grown in an organic, slightly anarchic and devolved way, with no central oversight or control - is also its weakness.
There is no central authority to step in and give any kind of guidance to Mt Gox customers whether their money is safe or gone. And there's no compensation safety net.
Bitcoin has been set up on the basis of pure caveat emptor. If its participants take any losses in their stride, and learn the lessons, it can go from strength to strength.
If they are unable to develop any kind of governance system that provides confidence that Bitcoins are where they are supposed to be, then it will disintegrate into fringe territory for loons and wild-eyed monetary anarchists.