Ami H. on the real power of Bitcoin, as it evolves to more than ‘just’ currency, to help establish trust online for anything.
Some of the members of the apps – Ethereum and Counterparty will be speaking at Cybersalon on June 24th from 7pm.
The evolution of Bitcoin (BTC) is still in its birthing stages. Its gestation period has come to an end as “Bitcoin 2.0” has arrived. Accepted initially by small groups of software programmers, tech-savvy entrepreneurs, anti-establishment geeks and anarchists, Bitcoin is just beginning to gain worldwide attention, even though several Economics and Technology journalists have been reporting on it since its modest arrival in 2009 soon after the “genesis block” was created. As open source software it can be copied and modified freely, and so has spawned many similar “alt-coins”, Litecoin being the first of significance. Fundamentally, cryptocurrencies are simply decentralised records of transactions distributed among all users (rather like the inverse of a bank ledger), which are nigh on impossible to falsify or corrupt. Therefore they could represent shares in a company or property, communication records, web domain listings, online commerce, or even a voting record for an election. A shared transaction list powered by encryption algorithms instils an intrinsic layer of trust and transparency between its users and therefore has many applications beyond currency exchange (such as the Ethereum project proposes. Therefore, cryptocurrencies are breaking new ground as tools of social empowerment, with the potential to replace many traditionally centralised institutions.
Bitcoin was ignored by governments, financial institutions and the business world until people across the Internet began to invest heavily; hence the exchange rate skyrocketed in an unprecedented “bull market”, causing frenzies within the Bitcoin and cryptocurrency communities. The first massive price move occurred in January 2011; from under $1, to $35 per BTC. The next was October 2013; from $200 to over $1000 by December, now settling at around $600 in June 2014. Although dismissed by the media until mid-2013, it now receives regular negative attention and headlines in the mainstream, such as the disproportionate focus on the “Silk Road” website, where narcotics were freely sold with BTC until the FBI arrested the owner and confiscated approximately 175,000 BTC. Nevertheless, the FBI have no qualms in selling these coins for a profit; the first sale of 30,000 is expected to net the authority $17million, although they are technically the property of anonymous people from around the world and have no direct link to criminality. It is possible that negative mainstream press attention is growing because it is now recognised as an eccentric threat to traditional and dominant banking and monetary systems. However, Bitcoin is not likely to “replace” major currencies; rather, it represents a new and unprecedented form of exchange that can bypass the mechanisms of debt issuance that pervade global economies.
Perhaps recognising the unstoppable nature of cryptocurrencies, the UK tax office has in March 2014 deemed that cryptocurrencies are recognised as other currency for tax purposes. Meanwhile, daily BTC transaction volumes may now exceed Western Union while eBay and Paypal may soon adopt Bitcoin payments. Considering it merely as a currency, Bitcoin has been compared to gold or similar precious metals, as it is limited in supply, valued according to buyers and sellers. It remains largely free from the manipulation of global financial institutions, central banks, and political wrangling. It serves as a baseline for the multitude of cryptocurrencies, all valued in BTC. Unlike so-called “fiat currencies” such as the US Dollar, Euro, British pound or any other central bank currency, it cannot be endlessly printed; only 21 million will ever exist, once they are fully “mined” in approximately 20 years time. Therefore, the capitalists and libertarians who support cryptocurrencies see the potential for a new free-market embedded in the Internet and powered by distributed processing, out of reach of price-fixing or government manipulation, where a pure “price discovery mechanism” is truly realised for perhaps the first time. It seems that this mixed group of capitalists hope for a renewed “Californian Ideology” with cryptocurrencies, whereby some form of true “free-market paradise” and empowered individualism can finally be achieved.
However, thankfully there is much more to Bitcoin than the awkward potential for a digital “Randian” pseudo-utopia dominated by trendy cyber-yuppies and libertarian entrepreneurs, where the uninitiated or tech-phobic would struggle to survive. As a decentralised system it can allow entire communities to bypass banks and traditional currency exchanges, and thereby, associated fees and debts. As more vendors accept Bitcoin, dependence on dominant fiat currencies is reduced, and the era of “Bitcoin 2.0” continues to unfold unpredictably with new innovations and unexpected uptake of crypto-tech. For example, the Bitpay project aims to be the Bitcoin “Paypal” of the 20th century, potentially undermining the vast financial empire. Various countries and nations are issuing their own “alt-coins”, such as Iceland (Auroracoin), and the Oglala Lakota Nation of North and South Dakota (Mazacoin). Even Hull Council (UK) is attempting to implement “Hullcoin”, which would serve to supplement the income of poor residents; although the UK tax system has tough rules on local exchange and trading systems, impeding development thus far. These applications show that communities around the world can utilise cryptocurrencies as reserve or “hedge” funds, to securitise their local economies from dominant debt-based fiat currencies, develop local economies, or implement social security.
Meanwhile, “Cryptocurrency 2.0” is in acceleration mode, creating developments that will challenge many traditional institutions, providing social empowerment tools, and moving us towards the possibility of someday realising a “decentralised” world where everything from emails, birth/marriage/death certificates, asset ownership, internet domain names and stock markets could all be shared by anyone with a computer, via cryptographic blockchains. A few of the innovations forming the protoplasmic structures of this future include the Storj project (distributed cloud computing), Bitmessage (decentralised P2P email), Counterparty (global financial marketplace using the blockchain as an ownership record), Coloredcoins (“coins” issued to represent anything the user chooses).
When secure and accessible software platforms are successfully developed to bring these innovations to the masses beyond the tech-savvy, speculative “Bitcoin 1.0” generation, the future of global financial markets, local economies, intellectual property, information exchange, civil records and asset ownership (among a plethora of other social institutions) will be more weird and wonderful than anything previously imagined. In short, “Bitcoin 2.0” is here to stay, but its evolution into a permanent set of decentralised social exchange structures embedded within the Internet will become the precursor for a “Cryptocurrency 3.0” to watch for in the coming months and years.
Ami H is a freelance researcher with a degree in electronic engineering, who is especially interested in sustainability science, renewable energy, and technologies of empowerment. He can be contacted via email: [email protected]