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Continuing on with our series covering adventures in alternative currencies, many were quick to proclaim the death of Bitcoin, particularly following the June 2011 bursting of the Bitcoin bubble. For example, here is some doomsaying from the normally reliable Tyler Cowen; and for a pessimistic economic historian’s take see here.But following an undeniably rocky road the little digital currency that could appears to be having the last laugh. A good read can be found here on how Bitcoin is beginning to go mainstream.
At this stage the obvious first question is why has the decentralized, 100% digital currency proven so resilient? Scientific American provides one good answer:
When they (a merchant) finalise a deal in Bitcoin, they do so knowing that the transaction can never be reversed. The Bitcoin network doesn’t edit its ledger. As such, merchants no longer have to worry whether they are charging a stolen credit card.
“‘The fraud mitigation is big for Internet merchants, because they are all handling card-not-present transactions. And the business has to eat the loss if the payment is reversed later on,”‘ Gallippi says. “‘Using Bitcoin, a business can receive a payment from any country on the planet, instantly, with no risk of fraud.”‘
In addition to helping cut down on fraud costs for merchants, Bitcoin is chic. Using Bitcoins to transact business is a mark of digital savvy for both tecno hipsters and the merchants who cater to them.
What the future ultimately holds for Bitcoin is less interesting to me than a more general issue, which is the apparent growing trend in alternative currencies coming into existence.
We have already seen some Congressional saber rattling about Bitcoin prior to its flash crash. Will governments continue to tolerate it, Bristol’s new pound note, etc., while they remain small? Or will we see a more formal move in the not too distant future to stamp out these fledgling alternatives to government fiat money? As the article points out, government’s might have a hard time shutting down Bitcoin:
But perhaps most consequential for the future of Bitcoin—in order to shut down a peer-to-peer currency exchange, one would have to terminate every node on the network. The few lawyers who have studied Bitcoin all agree that the currency inhabits a legal grey area. No one really knows how governments would react if it gains traction, but many consider the exchanges to be the easiest target for people who want to regulate Bitcoin. Decentralizing the exchanges would make that job nearly impossible. Bitcoin developers are quickly proving that they can design decentralized alternatives to even the most sophisticated financial institutions.