Remember back in the day, when a single Bitcoin traded for a mere $ 100? It was a simpler time, before the nightly news began reporting on the value of hash strings, before every shared startup space was home to at least one virtual prospector and all the associated leaflets about crypto-anarchist society meetings. Bitcoin’s most avid supporters were still the fedora-and-leather-trench-coat set. Yes, it was a simpler time — but it was also less than a year ago. In just over 10 months BitCoin has transformed its reputation, built considerable trust with the pubic, and scrabbled haplessly up the value-slope to fully dectuple its sale price.
Now valued at over $ 1000 per coin (in some places), Bitcoin is certainly on the upswing — but can the ride last forever?
The primary impediment to Bitcoin’s continued success (besides the possibility that it will be legislated out of existence) is that right now Bitcoins are mostly just savings vouchers. Sure, people are buying Bitcoins, in the same way that they might buy gold to stockpile in a bunker, but if BitCoins sit in wallets they ultimately don’t help anybody. Unlike the value of gold, which has a physical basis and market controls that lend it some stability, BitCoin investors could very conceivably lose their fortunes overnight, making a mass panic and catastrophic sell-off a much more pressing concern. That, together with the fragility of data as opposed to bars of metal, mean that BitCoin has significant problems gold does not.
Value is a measure of demand, so when demand increases purely in response to a rise in value, we get a feedback loop. Imagine if nobody cared about gold for decorative and industrial purposes, instead using it exclusively as a place-holder for value both earned and spent in competing currencies. This is basically what we have today in Bitcoins, and though gold’s intrinsic value is largely arbitrary in nature (we think it looks pretty), that doesn’t make Bitcoin’s lack of intrinsic value any less dangerous. If people were willing to spend thousands to park a BitCoin on their finger for forty years, the story might be very different.
News organization often represent the largest Bitcoin transactions, transfers of tens or hundreds of thousands of dollars or more, as proving the economy’s health. Unfortunately, if I buy $ 100,000 worth of Bitcoins and send those Bitcoins to you, whereupon you immediately trade them back into US dollars, the Bitcoin economy sees little long-term benefit. The difficulties with online currency have made even the Electronic Frontiers Foundation cease accepting anonymous Bitcoin donations from its users — if Bitcoins continue to be mostly used to buy other currencies, as opposed to goods and services, then Bitcoin’s potential for growth is much, much lower than current speculation would have you believe.
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