Can Bitcoin Really Succeed Long Term?

from the questions-to-ponder dept

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community. Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis. While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

For quite some time, I've been interested in the general concept of currencies and how money works in general. I remember an early episode of NPR's Planet Money podcast, in which they tried to answer the simple question: what is money? They quickly discovered it's not an easy question to answer (and, in fact, those working on the podcast have revisited the question many times in many interesting ways -- including a fascinating episode a few months back looking at the Island of Stone Money . That episode discussed the island of Yap in the South Pacific, that for many years used massive limestone discs as money. And, by massive, I mean sometimes weighing upwards of a ton. In other words, it didn't have one of the key features that many normally associate with "money," which is that it's a "currency of exchange." In theory, you can't easily "exchange" a giant rock.But the clever islanders on Yap came up with a solution. It was made clear who actually owned which stones, and then you could effectively transfer "title" to the stones, even if you didn't move the stones themselves. There was even the story of boat that was bringing in a new giant limestone disc (the limestone all came from another island), and due to a storm, the boat capsized and the stone sunk to the bottom of the ocean. However, it still counted as money, just so long as everyone knew whose it was. Now, when you hear that at first, it sounds ridiculous, but as the Planet Money folks pointed out, is it really all that different than your bank account? The only reason you have "money" in your bank account is because the bank marks it in its database. The bank isn't literally holding a stack of cash for you. In fact, as soon as you give it your money, it's probably handing it out to someone else.All that brings me around to the question of Bitcoin. In various techie circles, there's been a fair amount of buzz about Bitcoin lately. Especially following efforts by other payment companies like Paypal and Mastercard to cut off contributions to Wikileaks, there's been a lot more interest in figuring out what infrastructure pieces in today's world should be more decentralized , and an obvious target is "money."And that's where many point to Bitcoin. Jerry Brito has a nice writeup on Bitcoin about how it's a decentralized digital currency that is growing in popularity, and, in theory can resist attacks and problems of previous attempts at various digital currencies, while providing significant anonymity. Tim Lee quickly responded with skepticism about whether or not Bitcoin can really work, looking both at the demand side of the question and the supply side . I'm not sure Lee'sarguments are entirely accurate, but I think hisarguments may be.This doesn't mean Bitcoin (or something like it) can't be successful. It's just that it has an uphill battle. I think it's already useful in certain areas, but that's a big step away from getting to where it really needs to be to succeed in the long run -- and those steps can be much bigger than most people imagine. However, I could certainly envision scenarios that lead to rapid Bitcoin (or similar offering) adoption. I just wonder how sustainable it would really be vs. how much would just be a fad. In the end, I have to admit that I'm torn on this one. While I appreciate the concept of Bitcoin, and think that it might be nice if something like it was really popular, I do wonder if it really has the legs to reach such a level of success. One thing I do know for sure, however: I'd certainly like to hear the folks at Planet Money examine Bitcoin and how it plays into their sporadic explorations of money itself.

Filed Under: bitcoin, currency, economics, money