Bitcoin has had a bumpy ride since elusive and known-by-name-only developer Satoshi Nakamoto introduced it to the world in 2009. The decentralized, digital form of currency has been praised in recent years for its anonymity, lack of fees, and freedom of use, but it has also been heavily criticized for its volatility, security flaws, and complexity. The new currency’s potential security issues came into the spotlight in February of this year when 510 million dollars worth of bitcoins went missing from “Mt. Gox,” the oldest bitcoin exchange. This “hack” resulted in the loss of approximately 7% (750,000 BTC) of the total bitcoins (12,940,750 BTC) that have been ‘mined’ since 2009. Unlike a bank heist, though, there is no FDIC to refund the loss of stolen bitcoins.
As for bitcoin’s volatility, the currency has seen a range in value from a record high of about 1,110 USD in December 2013 to a value of 576 USD a month later. Since January of this year, the bitcoin value has continued to fluctuate between 550 USD and 940 USD (it is currently valued at 570 USD).
These challenges for the digital decentralized system have critics like the Weekly Standard’s Jonathan Last claiming that we will soon see the demise of digital currency.
However, there are still supporters who feel that we are only just now about to experience a bitcoin boom. Entrepreneurs and business moguls like Peter Diamandis and Barry Silbert think that bitcoin is about to move from a “deceptive” phase to a “disruptive” phase as a legitimate currency system and technology. While bitcoin has not yet been fully accepted by the general public and industry at large, it is approaching what Diamandis calls its “User Interface Moment.” This is the point where a technology becomes exponentially more accepted by the public, and its value increases accordingly, thus leading to a “disruptive” phase, where it upends traditional systems and processes.
Diamandis and Silbert feel that we will see this “User Interface Moment” occur within the next one to two years as programmers continue to learn more about the digital currency, and as software is created to help the average user manage and interact with their bitcoin supply. They also believe that as more and more businesses begin to accept digitized money, it will accelerate the arrival of the “User Interface Moment.”
Would it be beneficial to invest in such a volatile currency that comes with a fairly high probability of loss? Are there any true benefits to using bitcoin?
Diamandis believes that there are positive aspects to the currency. He says that when it comes to e-commerce, bitcoin is actually safer than debit or credit cards, because bitcoin transactions, like cash transactions, are completely anonymous. While there is still potential for transactions to go wrong, and the possibility of electronic wallet hacks, there is no possible way for hackers to steal your personal information since it is never asked for when bitcoins are used. Diamandis also points out that there are barely any fees attached to bitcoin since there is no centralized governmental system that handles its growth and allocation. The transactions and operations are handled by users within the monetary system, and all transactions can be viewed in the system’s public ledger. This allows everyone connected to the network to have access to, and to be able to understand, all of the same information. Diamandis explains that a broad adoption of bitcoin would also allow for all users to access actual capital, which could possibly make it a more democratic currency system.
Overall, bitcoin is still a very young technology, and it’s a system that has yet to be completely understood and used to its full potential. It will be interesting to continue to watch its growth and evolution – that is, of course, if the system doesn’t implode. While the positive of aspects of the digital currency could lead to a revolution in the handling of funds and online transactions, it is still a very highly speculative investment, and caution should definitely be taken before considering personal use of bitcoin.