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In fact, it’s pretty clever. The obvious challenge with an electronic currency is counterfeiting: making exact copies of a computer file is (usually) trivial. This obviously doesn’t mean that electronic payments have been impossible up until now; it’s just that these transactions required a third party to ensure that the transaction showed up as a debit for the payer and as a credit for the payee. The clever part of the blockchain technology behind electronic currencies such as Bitcoin is the encryption that makes it possible to transfer ownership directly, without third-party verification. And just like with cash payments, the transaction is anonymous.

Photo by Chris Ratcliffe/Bloomberg

As I said, it’s pretty clever. But then again, it’s nothing particularly special, either: to a very great extent, cryptocurrencies are simply re-inventing the wheel. There is almost nothing that you can do with cryptocurrencies that you can’t already do faster and more cheaply with existing instruments. The costs of making a bitcoin transaction are steep: the fee is about $20, and it typically takes an hour — and sometimes up to 12 hours — for the trade to clear. In contrast, a transaction with a debit card is costless and takes a few seconds, and is virtually instantaneous if you’re using a paypass card.

There’s also the question of anonymity. For most people, it’s enough to simply pay cash for small transactions that you’d rather keep private, but cash can be cumbersome for large transactions. But then again, the sorts of large transactions for which one would rather not leave traces are typically those involving illegal activity. For criminals, cryptocurrencies offer an alternative means of making payments that doesn’t involve dealing with suitcases filled with $100 bills. This may not be a positive development on the public policy front, but at least it can be argued that cryptocurrencies are not completely useless.