Like so many trends, the Bitcoin phenom was born, lived — and now has nearly died — before I ever got a handle on it. The world’s first virtual currency was virtually wiped out just as I was beginning to understand its significance. And now it looks as if it’s not going to matter.
Ironically, although the concept of Bitcoin (I’m not sure if there is a plural) is very simple, the actual nuts and bolts of the thing are impossible to understand. For example, I have no idea how Bitcoin is generated, and nobody I’ve talked to does either. Even the mighty Wikipedia is so convoluted as to be useless. Not only that, but I have yet to find a place where I (or anybody else I know) would spend Bitcoin, assuming of course that we had any. These are two serious problems with a currency which is supposed to take the place of sweaty twenties and good old-fashioned Visa™. However, let’s put the thing into perspective. because even though Bitcoin may be going the way of the iPod, virtual currency is the way of the future.
As far as I can tell, Bitcoin is the brainchild of a group of Uber-nerds who created it as virtual money — money that exists without ever taking tangible form. Their concept is an anarchist’s dream: a People’s Free-Range Currency, untethered to any bank or national monetary system. It is money that follows the ebb and flow of the marketplace; its value dictated by its purchasing power. This is not a radical idea. It’s merely contemporary capitalism at its fundamental best. Let me explain.
As we all know, in simplistic terms, money is nothing more than faith. We believe that the piece of plastic in our pockets will buy us Big Macs™. We’re allowed to buy them because McDonald’s believes they will get their money from our bank. Our bank gives McDonald’s the money because they believe we will pay the bill when it shows up. Everybody’s happy, and we’ve had lunch. In this entire sequence of events, no one has actually handled any money. The reality is our national currency is virtually virtual money already.
So why did Bitcoin fail so miserably?
The answer is quite easy. The creators of Bitcoin forgot one simple overwhelming principle of economics: money is only worth what it can buy you. Since currency itself has no intrinsic value, if it can’t be exchanged for Big Macs™, it reverts to its original incarnation – a rectangular bit of plastic with your name on it. Thus, when it became apparent that Bitcoin couldn’t be exchanged for anything beyond a few esoteric Internet specialities, it ceased to be a currency. However, since it was tied to a tangible dollar value, it became a commodity and — in a marketplace (the Internet) without any rules — the object of wild-eyed speculation. Bitcoin was a bubble waiting to burst, and last week it did. Today, it doesn’t matter how Bitcoin is generated or what people say it’s worth; it’s virtually valueless.
Bitcoin didn’t fail just because ordinary people couldn’t buy anything with it and therefore lost their faith in it. It actually failed because we don’t need another virtual currency. We have one already. In fact, aside from street corner drug deals, we live in a cashless society. We no longer need tangible money to go about our business and, in reality, very seldom use it. So it doesn’t really matter that I missed it: Bitcoin was redundant before it began.