Bitcoins, and other e-currencies along similar lines, are all the rage these days — and everyone’s talking about them as if they know what bitcoins actually are, or do, or something. It won’t surprise you to learn that most people know only part of the picture, and most of those hardly understand the part they know.
In fairness, bitcoins are a challenging concept to understand. But we here at the Phoenix are always up for a challenge, so we’ll break it down for you. First, we’ll have an explanation of what bitcoins are, what they’re not, and what they make possible. Then we’ve assembled a set of arguments that explain how and why bitcoins are both the end of the world as we know it, and the next step to saving the world we love so well.
A useful point to start is to note that the word bitcoin, when used with a lowercase b, refers to the units of currency; when capitalized, Bitcoin refers to a software and the Internet-based communications methods used to track and exchange them. There are also other e-currencies, such as litecoin; all of them use the basic structure and concepts underlying the Bitcoin system, and differ only in the most arcane of technical details. They’re also not nearly as popular, nor as widely accepted — in part because bitcoins got there first.
Something from nothing
During, and in the wake of, the 2008 financial crisis, the institutions we had relied on to ensure economic stability turned on us. Several deeply concerning and fundamental facts about the world’s currency became widely apparent:
>>Banks can’t be trusted Not only are they often working in opposition to their depositors’ best interests, but they gambled with other people’s money, lost, and then asked for government bailouts to pay off the debt.
>>Governments can’t be trusted Rather than protecting their people’s interests, governments sometimes see their citizens as just another cash source. In March 2013, faced with an impending economic collapse, the government of Cyprus confiscated 10 percent of all the money held in accounts in that country’s banks.
>>And anyway, money’s value is imaginary Governments, including the United States, can create massive amounts of new money out of thin air, and give it to whomever they want (usually the banks, as opposed to the people). This has always been true, but politicians and other financial experts no longer seem to worry that regular people object.
>>Still, money is an inescapable, integral part of our daily lives It’s a very flexible medium of exchange, which I can accept in remuneration for (to pick an example) my reporting and writing and spend in a grocery store in exchange for food.
Some people had expressed those concerns long before the 2008 meltdown; afterward, more people understood them much more clearly.
Out of these problems came a seemingly simple solution: Create another currency, not beholden to a government, and find a way to store it safely without banks.
Of course, it turns out those are two very hard things to do, while still preserving the confidence and security we expect from a monetary system. The most difficult problem is how to prevent counterfeiting — which is of course far easier with a digital item than a physical one (as the movie and music industries have learned, to their dismay).