We Don’t Need Your Money: Bitcoin and the Future of Digital Currency

In my last post, we got a glimpse into the way new digital media may affect our interpersonal relationships in the future, through Aritifical Intelligence and conversant robots. This post explores another potentially game-changing technology: digital currency.

We are all familiar with digital payments, from PayPal to iTunes accounts, direct deposits and online bill payment—but all of these are tied directly to actual fiat currency, or governmentally regulated, internationally compatible money. In Second Life, players use Linden dollars in daily activities, but these are also for purchase through US dollars. Digital currencies such as Bitcoin, however, operate independently from any national government. Bitcoin is “a currency by the people, for the people,” according to NPR’s Planet Money reporter Jacob Goldstein. It exists only digitally, essentially a computer program designed and implemented by a reclusive and mysterious man named Satoshi Nakamoto—which may even be a psyuedonymn for the actual creator.

It took me a while to figure out exactly how Bitcoin functioned, but here is the gist. Bitcoin is a peer-to-peer monetary system actually capable of purchase power. There is a finite amount of Bitcoins, “mined” by users who download the computer program, run it, and are hopefully fortunate enough that their computer discovers the hidden bitcoins by solving a complex mathematical equation. Bitcoin took off over a year ago and experienced a rush of interest—now very few Bitcoins are available for download. At this moment, one Bitcoin is worth fourteen dollars. But currently the only way to obtain Bitcoins was through an online trade, Mt Gox, purchased at the market rate using traditional currency. As of July 1 this year, the Mt. Gox trade has collapsed.

Bitcoin is experiencing a rocky start. After the gossip blog Gawker ran a story about linking Bitcoins to a website selling illegal drugs, the Bitcoin exchange rate went berserk. After Bitcoin was hacked and people were allegedly “robbed” of Bitcoins, the rate plummeted. Despite the ups and downs, Bitcoins are still exchanged and sold for cash. Aficionados and proponents of Bitcoin have developed a video shown in both English and Spanish. Interested? MyBitcoin.com allows you to sign up and open your own new wallet.

Once you start collecting, don’t be surprised if your Bitcoin bank account looks something like this: 4.56739002. Bitcoins can be divisible down to multiple decimal points—tiny fractions that seem ridiculous but may translate into real money should Bitcoin ever gain substantial value.

The Planet Money podcast on Bitcoin points out a major advantage: they are essentially online cash, which doesn’t actually exist. Every payment online is either made through credit card or lengthy bank account-linked transactions that can be expensive. I admit that when the podcast mentioned that one user had already made over five thousand dollars trading Bitcoins, I was intrigued.

If Bitcoin isn’t the future of digital currency, I am convinced something else will take its place.