Bitcoin's Viability

Bitcoin’s popularity has been steadily growing since its publication in 2009 and has been adopted by various markets, not limited to those which are internet-based. Its decentralized and community-oriented nature provides a dynamic that is arguably more fair than current nationalized fiat currencies. With Bitcoin standing as a contender for recognition by national bodies, how can we be sure that the system is stable enough to support our vast economic landscape?

Bitcoin’s innerworkings are relatively complex and at first seem to be cloaked in gramarye. This may be intimidating to some, but the complexity of the Bitcoin system is trivial compared to that of the dollar. We are predisposed to the dollar, a currency which is regulated and controlled by large entities, because it is standard, it is normal, it is what most people use to transfer value and settle debt. One of the beauties of Bitcoin is that one need not know how it works in order to use it, a characteristic common to the dollar. The technical details are available for those who are curious, but most users are content with understanding the basic functions of Bitcoin. At a minimum, Bitcoin requires its users to understand how to use a computer or mobile application, which may pose an issue for less tech-savvy individuals but is otherwise a very reasonable requirement in order to use the system.

Another issue with the system is the potential for starvation, or the pooling of total available bitcoins into the hands of wealthy individuals. When, for instance, one individual owns roughly one percent of Bitcoin’s total value, the rest of the system must react in order to balance that deficit. The potential for individuals to corrupt Bitcoin by causing deflation within the system does exist. If one entity manages to control at least 50% of the Bitcoin network, they have the ability to “double spend”, or make multiple transactions with the same bitcoins. There are a number of other weaknesses within the system, most of which derive from the rules governing it.

Perhaps the greatest issue, one which many overlook as it is not immediately apparent, is the enormous amount of computation required to ensure the system’s security. Bitcoin mining, in a nutshell, can be described as a race, consisting of a computationally expensive puzzle, among the network’s fastest and most powerful computers in pursuit of winning the next “block” along with a handsome reward of bitcoins. Many individuals and groups have spent large sums of real-world value to construct hardware designed specifically for solving these puzzles. During an age in which supercomputers allow us to analyze protein folding, simulate the big bang, and model the swine flu for the benefit of humanity, it is slightly unsettling to realize that our fascination falls into solving meaningless puzzles for a virtual reward.

Despite these issues, Bitcoin has made its way into many various markets, inching towards widespread acceptance with Germany at the forefront of this revolution. Clearly, there are many things to consider before declaring Bitcoin a currency, including whether or not it should be at all. It would not surprise me though to find the virtual network stronger and more intertwined with our current economic system in the near future.