Why you should care about Bitcoin: digital currency is here to stay

No, you can’t open a Bitcoin bank account at JP Morgan Chase just yet.

And you certainly can’t pay your IRS tax bill in bitcoins: the taxman views the fledgling cyber-currency as an asset, not a means of exchange.

We can’t hold it in our hands, use it to fill up our cars with gas, or do much but grab the occasional sushi dinner in places like San Francisco, or shop online at the handful of merchants that accept bitcoins.

So is there anything at all that ordinary consumers can learn from the ongoing hullabaloo surrounding Bitcoin, the digital currency catapulted into the spotlight over the last year?

Most of us have been spectators as the drama has unfolded. First came the October 2013 raid that shut down Silk Road, an “underground” online marketplace billed as the Amazon.com or eBay of illegal drugs (as well as all kinds of other merchandise) for which users paid in Bitcoins. Bitcoins are created – or “mined”, in geek jargon – by computers competing to process bitcoin transactions, avoiding the need for a government’s central bank, like the Federal Reserve, to create dollars, Euros, yen or Swiss francs.

Only months later came news that Mt. Gox, a major Bitcoin trading exchange, had collapsed and filed for bankruptcy after cyberthieves allegedly made off with nearly $500m of its customers’ bitcoins. (Some were later found in an old online wallet. Yes, really.)

For many of us who still rely on dollars and cents to pay our bills and who have been reminded of the security perils of online banking by the “Heartbleed bug”, the recent coverage may well have been the first time we’d ever paid much attention to the four-year-old Bitcoin.

After all, by some calculations, there are fewer than 200,000 registered Bitcoin addresses in existence today. For purposes of comparison, consider that the US population comprises 313.9 million people, and OECD nations as a group have a population of more than 1.2 billion people.

That’s hardly mainstream acceptance.

Nor have bitcoins become mainstream, even in the pockets of the early adopters in the US. When Forbes reporter Kashmir Hill tried to live off bitcoins for a week last year, she managed – but only just.

If Bitcoins have achieved fame, it’s more likely a kind of infamy. And part of that is due to the fact that if they have proved (so far, at least) to be still bumpy as a routine payment technology (don’t try to pay your phone bill with them), they have fared even worse as a store of value.

That’s the other test of a currency: a dollar should still be a dollar a year from now. A bitcoin? Well, last December it was worth $1,147; by early April, it had plunged to $445.

Does that mean that there’s nothing for the rest of us to learn from bitcoins, or alternative currencies in general, beyond the fact that they can get their founders, boosters and true believers into a whole lot of trouble?

Not at all.

“This is forcing a new conversation about the nature of money,” says David Wolman, author of the 2012 book, The End of Money. “And what all the attention about Bitcoin tells us is that it is already serving many of the functions of money.”

Admittedly, that may not last long, give the combined attentions of the Justice Department and the Treasury Department and their various agencies (think: the FBI, the IRS and their ilk … ). Certainly, I doubt we’ll be opening Bitcoin accounts at JP Morgan Chase any time soon.

On the other hand, Wolman says that even if Bitcoin succumbs to all the pressure, this is simply the first stage in what he describes as a game of “whack-a-mole”. “If Bitcoin dies, there are a dozen or more other cyber currencies waiting in the wings to be the next Bitcoin.”

With each one, consumers will have more opportunities to try out these new payment methods and digital currency designers will have the chance to refine and perfect their offerings. Hypothetically, each could open the door to greater levels of acceptance to alternatives to government-issued currency. After all, if you know you can later use bitcoins, or, say, whuffies to buy groceries, wouldn’t you accept the same currency in payment for designing a client’s website?

“Bitcoin has simply woken people from the mindset that 'currency' equals 'green rectangles of paper with pictures of dead American presidents on them',” says Wolman.

Just what the people who print all those green rectangles have to say about that may prove to have a lot to do with how we end up using bitcoins and their heirs. But expecting Bitcoin to simply disappear is like turning our backs on the internal combustion engine and the internet in favor of horse-drawn buggies and quill pens.