Jun 11, 2012

How likely is it that the digital currency Bitcoin will actually succeed?

Bitcoin, the "virtual currency", has been around for a while now. I thought it would quickly fail and fade away, but I realized that I've been thinking that for almost two years now, and Bitcoin is still here. I have never used Bitcoin, and there have been enough examples of Bitcoin theft to keep me leery, but I'm starting to wonder if it is here to stay. I have my doubts about a form of currency that isn't backed by a government, but then again, economic monetary concepts don't require that a government be the only source of currency; there are many examples of private currency throughout history. There have either collapsed or been regulated out of existence though, which is one reason why I anticipate(d) the downfall of Bitcoin. The other thing is that I don't really see the need for Bitcoin, since we already have the US dollar/euro/yen whatever. What am I missing here? Why has Bitcoin survived this long, and are they likely to make it over the long haul?


I think it is an interesting experiment.  Well, maybe experiment isn't exactly the right word.  What I find appealing is that it is outside of the traditional financial infrastructure, and allows you to get away from your bank tracking every online transaction.  It also allows some measure of reassurance that when a merchant account is compromised, all of your personal banking information isn't suddenly exposed.  I do have some reservations about the concept, but I agree with the earlier post that it is worthy of giving a try. 


> What am I missing here?
> Why has Bitcoin survived this long, and are they likely to make it over the long haul?

Bitcoin is a protocol.   It survives as long as people or machines use it.


When you ask "are they likely to make it?", ... remember that there is no corporation, bank, government or organized body that you can refer to as "they".   Bitcoin today is the result of mass collaboration around an open system.  This is much like how the world wide web looked about the time Marc Andresen helped find its killer app (and that app was the web's graphical browser).

You are right, we already have currency that could work electronically like Bitcoin.  However, just as we are seeing in Europe with the bailouts for the banks in Spain (following the bailouts for the banks in Greece, and prior to that the bailouts for the banks in Ireland) the government's solution to the problem is to print more of the currency. Devaluation through the inflation of the money supply is a very harmful action, a medicine worse than the disease.   Bitcoin's currency inflation is at a rate predetermined by an algorithm.  This algorithm is protected by a massive amount of computing power in what is today the largest distributed computing project (in terms of computing power) in the world.


You mention that you are "leery" of Bitcoin.  Because the value of a bitcoin floats against the dollar and other currencies based on a combination of market demand and speculation, there is no guarantee how much it will be worth in the future.   But bitcoin doesn't exist just to be a store of value, and can be used to take advantage of its benefits, on a per-transaction basis where there is little exposure to exchange rate risk.  Let the speculators worry about that.

There are more and more reasons that Bitcoin is continuing its ascent.  Because its fees are trivially low, especially compared to payment card networks, merchants can either pocket the savings or offer a discount to the customer who pays using bitcoins.  This is like getting a discount for cash that some gas stations offer.  That's just one of the advantages, .. here are more: http://bitcoinmedia.com/bulleted-advantages

Rather than wonder from afar, ... take bitcoin for a trial run.  First step is to get yourself a wallet.   The fastest way to get started is to use Instawallet.  http://Instawallet.org   (bookmark the URL so you don't lose it, as you can only access the wallet if you have the URL).   Then get yourself a sample of free bitcoins:  http://freebitcoins.appspot.com    And after you've received your bitcoins from the faucet you'll have those in your wallet, ready to spend when you are ready.    Want to share them?  Use Coinapult to send the bitcoins you received to someone on their phone (received as an SMS text message) or e-mail.  http://www.Coinapult.com

Now remember that everything you just did there, received money, and then sent money, required no accont signup, no confirmation email, no terms of service that you had to agree to.  Rememer this the next time you want to pay for something online and remember how simple receiving and sending bitcoins was.

I haven't used it either, but at least it's available as an alternative for the folks that want it. Here's an article with details that will help you understand what it's all about and why it might work over the long haul.


"Bitcoin is a decentralized electronic cash system that uses peer-to-peer networking, digital signatures and cryptographic proof so as to enable users to conduct irreversible transactions without relying on trust. Nodes broadcast transactions to the network, which records them in a public history, called the blockchain, after validating them with a proof-of-work system. Users make transactions with bitcoins, an alternative, digital currency that the network issues according to predetermined rules. Bitcoins do not have the backing of and do not represent any government-issued currency.[4]

The Bitcoin network came into existence on 3 January 2009 with the issuance of the first bitcoins.[5] In the same month the creator, Satoshi Nakamoto, released the original Bitcoin client as open-source software.[6][7] Prior to the invention of Bitcoin, electronic commerce systems could not securely operate without relying on a central authority to prevent double-spending. Nakamoto sidestepped this requirement for Bitcoin by employing a proof-of-work approach in a peer-to-peer network to reach consensus between peers on the validity of transactions.[4][8] Bitcoin is a relatively new project under active development. As such, its developers caution that users should treat it as experimental software.[9][10]"
Answer this