March has been a tough month for digital currencies.
Bitcoin, the world’s first digital cryptocurrency, was dealt a massive blow when its biggest exchange Mt. Gox announced the theft of millions of dollars’ worth of bitcoins and its consequent bankruptcy.
In addition, a spate of smaller scale thefts have rocked other digital currencies, such as the USD 600,000 FlexCoin case.
Yet the purchase of bitcoins shows no sign of slowing, and is perhaps even stabilising.
Even as stories continue to break this week, the currency is not only surviving; but gaining – trading almost 10% percent higher last Saturday than the week prior.
With this in mind, I want to take a look at what makes digital currencies so popular, and so enduring.
Bitcoin is the first real attempt at a digital currency.
It can be bought with other currencies on online exchanges, and exists as a string of code you can store in a ‘bitcoin wallet.’
It’s a guaranteed payment, and just like “real” money, it fluctuates with regards to other currencies, and has its own exchange.
Yet whilst bitcoin shares a lot of traits with real money, part of its popularity and the reasons for its predicted growth is its complete and unerring uniqueness.
One of a kind
The currency can only be produced by a special algorithm which limits the total amount of the bitcoin currency in the world, and furthermore assures that any payment which is made is 100% anonymous and irreversible.
In addition, it is completely decentralised, meaning:
- No banks control it
- No mint creates it
- No regulatory authority oversees it.
Three factors that apply to all digital currencies.
This freedom is the cause of bitcoin’s popularity as an investment, and the reason many are predicting digital currencies will be used more and more in the coming years.
If bitcoin and other digital currencies continues to grow, banks could lose their function as the middle man of transactions – and consequently lose the associated transaction fees.
Because these currencies are global, there are no exchange rates, meaning states don’t determine their worth and can’t tweak that worth to accomplish their needs.
This makes the most radical proponents of the currency see digital currencies as a giant killer – ready and able to take down the traditional banking system.
With great power
With this potential to disrupt states around the world, comes a greater need for it to be regulated.
What many experts believe is that whilst the idea is solid, people are less so, meaning the currencies appear untrustworthy.
Of the many safety concerns which need to be addressed, many of them are humanistic; such as the ease with which digital currencies can be stolen, how hackers can infiltrate and corrupt exchanges, and the relative ease with which they can be used to purchase illegal goods or activities.
With that in mind, I believe it’s time to learn from the mistakes of bitcoin, and develop the next stage in digital currencies; with tighter security, and more regulation over peripheral businesses like exchange companies and websites that accept the digital currency.
It will be the same kind of continual development that marks how the world wide web has developed, and continues to develop, every day.