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Bitcoin: A Brave New World

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Since the mid-'90s the Internet has revolutionized the world. I am old enough to remember the place before. A place in which children used to send thank-you notes for birthday presents by post, where you would need to go out to rent a film from the local video store, or make a trip to a news stand in order to pick up a paper which contained yesterday's news.

But the Internet opened up a new type of world; a virtual one where you can send emails without needing to step outside and post a letter; where you can find out how your friends are via Twitter feeds or Facebook updates -- avoiding the rigmarole of actually knocking on a door and asking; where relationships and even marriages are realized online without the participants ever even meeting in 'real' life.

In fact -- across cyber space whole communities are formed -- manifested in and through digital cities where avatars enjoy virtual lives, travel to virtual workplaces, create virtual families and even endure virtual deaths. In the limitless void of the e-ther, every real world action receives its ghostly cybernetic echo, generating a strange and wonderful realm through the looking glass of your own computer terminal.

But what if the boundaries between the virtual space and the real one began to dissolve? What if things from the one realm started to cross over into the other?

If your knee jerk reaction is to think that sounds like the fantastical stuff of science fiction then I urge you to think again. It is closer than you think! Ladies and gentleman (roll of the drum)... take a look at Bitcoin!

Bitcoin is a form of virtual currency. Nothing new or particularly remarkable in that, mind you, as for ages computer geeks have been creatively designing their own forms of virtual currency in order to pay for virtual products - players using pixelated doubloons to acquire digital weaponry for on-line medieval role-playing games, for instance. But what is unique about Bitcoin -- is that it is the first peer-to-peer virtual currency which can also be used to buy actual real world products. Since its inception in 2008, Bitcoin has proved more and more viable; it is increasingly accepted by merchants and individuals across the world, and even a few major companies such as WikiLeaks.

As it operates peer-to-peer, Bitcoin effectively cuts out the middle man. Under this model
you could send a transfer of money from Boston to London without a portion of it going to your bank or an organization like Western Union. The transaction provides an unmediated link between sender and receiver. Over time they would save a great deal of money. And all that is required is an Internet IP address.

But this lack of regulation, say its critics, means that Bitcoin is open to all forms of abuse. Already it has been linked to 'deep web' black market sites -- sites like the infamous Silk Road which allows buyers to anonymously order various hard drugs while maintaining user anonymity. A crypto-currency like Bitcoin which need not pass through any bank accounts is conducive to invisibility.

The FBI have speculated, should Bitcoin continue to grow, it 'might logically attract money launderers, human traffickers, terrorists, and other criminals who avoid traditional financial systems.' In addition, should the currency depreciate as a result of sudden crisis, there is no central bank or state-sponsored support its users might rely on to help it to stabilize. Indeed there were ominous signs of this when in 2011, and again this April, the Bitcoin 'bubble' seemed to burst and a panic sell-off ensued which caused Bitcoin to lose its liquidity.

Its advocates are more optimistic, however. Mihai Alisie, editor of Bitcoin Magazine, acknowledges that criminal elements may try to take advantage of Bitcoin, but argues this is no different from any other product -- 'You have a knife, and with that knife you can put butter on your bread or you can kill someone. But you make the tool bad or good.'

And the argument which suggests any major currency must require some form of central banking organization is inevitably damaged by the nature of the current economic crisis -- which was very much bank driven. Most recently the crisis has claimed its latest victim -- Cyprus. The president there made the controversial announcement that the bailout for the country's banks would, in part, be paid for by seizing money from the accounts of depositors -- and when this was rejected by the parliament, a levy was placed on substantial deposits, while withdrawals were limited along with overseas transfers.

The sense of not having power over their own money caused a great number of Cypriots to start buying up bitcoins as a means of better controlling their finances. As a consequence, Cyprus will soon become the first place in the world to feature a Bitcoin ATM machine.

Nevertheless, in light of its sudden economic depreciation this year, many critics suggest that Bitcoin is in terminal decline. And they might well be right. But this also misses the point. What is most significant about Bitcoin is the idea of it. True, this particular incarnation may well cease to exist in the near future. But money has never stopped evolving -- from its early forms where crops like barley were used as currency, or sea shells, to later variations which lead to metal coinage and then paper notes and checks.

The idea of a peer-to-peer virtual currency floated across vast swathes of international populations irrespective of borders could well be the next stage in the evolution of money -- its brave new world.