A couple weeks back I had written about bitcoin and how it may be the beginning of the future of ‘non-standard’ currency. The articles in the most recent Economist magazine seems to reinforce my opinion (big thumbs up to the Economist magazine- I eagerly wait for my copy every Saturday and devour its contents).
The article compares bitcoin to large stones used by some inhabitants of the Pacific Ocean- these were not stone coins, rather large stones that were difficult to move, and instead of them moving, the owners of these stones moved- which is kind of how bitcoin is transacted. So effectively, professes the article, bitcoin can be used to transfer ownership in other currencies and financial assets.
Banks, while not embracing this ‘digital currency’ concept, must be starting to worry; after all an entire institution has been built around the ‘physical currency’ and this new concept is a threat to the establishment- so this is a disruptive technology for the financial industry as a whole, especially when the value of bitcoin circulation has jumped from $490m to $7.9b in just a year, a 16x jump.
While bitcoin does not yet have all the features of the physical currency, it is a good medium of exchange and can be moved around quickly. However, its volatility is scaring people away; ironically though, countries with wildly fluctuating currencies like some in South America are switching to bitcoin – guess it is all relative.
The challenge will be moving away from pegging bitcoin to a traditional currency and making bitcoin operate on its own based on supply and demand- we are all trained to think in terms of traditional currency and it will be a difficult cultural shift, for the current generation.
Similar to social media and hand held devices shifting the habits of the newer generation, digital currency may be more acceptable to the future generation which has been raised to think according to physical currencies and transactions.