When Chinese President Hu Jintao visited the US earlier this year he wasted little time flattering his hosts, criticising the US-dollar dominated global currency system, which he called a “product of the past”. Closer to home we’re watching our Aussie dollar’s meteoric rise, and at the same time having a debate about scrapping the five cent coin.
But the future of money could be far less about dollars, superpowers or coinage if virtual currencies ever cross the line from virtual to real.
Bitcoin is the latest in a long line of electronic currencies seeking to convince the world that we don’t need banks, and if you can build trust among peers, you can create value out of nothing.
Bitcoin says it is changing finance the same way the web changed publishing. Banks, and more importantly, regulators, might have a little to say on that.
The people running San Francisco start-up conference Launch say Bitcoin could “topple governments, destabilise economies and create uncontrollable global bazaars for contraband”.
Bitcoin is a decentralised digital currency, that instead of relying on a central authority to issue new money, relies on individuals “mining” their own coins and trading them via peer-to-peer networks.
It could be Napster for money (Nap$ter?), circumventing banks and allowing people to trade fluidly across borders. But we all know what happened to Napster and it might be difficult for Bitcoin to avoid the same fate, except Bitcoin will feel the wrath of governments rather than music labels.
Global regulators have been quick to shut down a raft of electronic currencies in an attempt to ensure they are not used for money laundering. But the fluid nature of the web means there will always be alternatives popping up, in the same way Napster copycats emerged to take Napster’s place.
Bitcoin is completely open source — meaning it’s given away the keys to its design so others can leverage what it has built.
Online gaming has been the real driver of virtual currencies to date, while increased tracking of funds transfers post September 11 has pushed illicit activity into Hawalas and other cash-based networks.
Digital rights campaigner Electronic Frontier Foundation says the model proposed by Bitcoin is in many ways a response to some of the privacy and autonomy concerns surrounding our current financial system.
It says peer-to-peer currencies are an alternative to current money systems that are dominated by monitoring of financial transactions and blocking of financial anonymity. Why, asks EFF, can’t we have an online currency system that offers the same anonymity that we get in the offline world with cash?
Anyone in law enforcement or corporate banking could give a long list of why financial anonymity shouldn’t be a right for everyone.
But the case of banks and payments giant PayPal closing ranks to effectively shut-down donations to WikiLeaks is a good example of why alternatives are being more seriously considered.
If by a small miracle Bitcoin can evade the regulators, or make a case for itself being regulated, its success will come down to trust. Banks already offer customers a level of privacy by acting as a trusted third party.
Bitcoin is trying to make the case that in online networks we can trust our peers, since the network itself will keep the players within it honest.
Collaborative consumption is a buzz word for the rapid explosion of swapping, sharing, bartering, trading and renting that has been enabled through new technologies on a scale never possible before, and it’s a trend worth watching if only for the innovative start-ups it’s spawning.
*This article was originally published at Technology Spectator