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Monday, April 8, 2013

Where's the Money?

About two years ago we wrote this post which discussed the future of virtual currency.  This is a concept that is only in its infancy, but I think it will become a more important part of the global economy in the not-too-distant future.

I recently came across this article about the current status of Bitcoin, one of the virtual currencies we mentioned in our prior post.  The article begins by noting that the world value of bitcoins just passed $1 billion, which, in the view of the author, puts them in a bubble that will likely burst soon.  However, that is not the real issue at stake, as the author goes to say:
"...it’s worth taking a look behind the bitcoin bubble, because there are fascinating implications for anybody who cares about payments, or currencies, or trust."

This is of great interest to me and important to us all, given that one of the great issues facing the global economy today is the stability of world currencies like the Dollar and Euro.  Just as gold has come and gone as the world's currency, so too may today's government created fiat currencies ultimately become a thing of the past (or at least function much differently than they do today). 

Bitcoin is an interesting experiment, but it has serious problems -- many of which are detailed in the article.  However, the experiment has started us down the road to a possibly very different future for money:

"I do have hope that in the future, someone, somewhere, is going to learn from bitcoin’s mistakes, and build a better system. One which needs less technological expertise to use; one which can grow organically, instead of only at a predetermined rate; one which is designed to be used primarily as a payments mechanism, rather than as a store of value and a unit of speculation.
When that happens, cash will start looking decidedly anachronistic, as will wallets. We’ll have everything we need on our phones and in our web browsers, which we’ll be able to use for everything from paying for on-street parking to sending flowers to a friend in New Zealand to buying and selling shares of Google and Apple on the New York Stock Exchange. If we want to keep our money in a bank, we can; if we don’t, that’s fine too. And of course we can keep it in any mix of currencies we want as well....It’s impossible to know when – or even whether – this is going to happen. Bankers in general, and central bankers in particular, tend to be extremely conservative, and anything which could facilitate money laundering or other illegal transactions is going to have a lot of difficulty getting traction. Bitcoin took off quickly because it never asked for permission; its successor is going to have to be a lot more diplomatic."
As we have noted before, we certainly do live in interesting times!

Postscript:  This showed up Thursday on the Wall Street Journal website:  Bitcoin plummets amid slowdowns and hacking of service sites