Bitcoin's a Revolution, Not a Convenience
Henry Blodget has a post today in Business Insider applauding the rise of digital payment methods as alternatives to dirty, smelly, heavy cash. He has a point: Cash can be a lousy way to pay for things, and options such as credit and debit cards, PayPal and the digital currency Bitcoin can be a lot more convenient.
A conversation about Bitcoin as a viable currency alternative inevitably also becomes a conversation about digital online payment systems, which have been getting extra scrutiny from federal regulator recently as fears of money laundering of digital accounts escalate.
Yet as we hash out the merits and perils of virtual money, it's important to make a clear distinction between the digital payment revolution and the digital currency one. Digital payment technologies simply replace cash as a means of transfer; digital currencies recreate and modernize it.
Bitcoin was actually designed to be a lot like cash. It works like "cash with wings" because it offers the privacy of cash transactions instantaneously over distance, writes Charlie Shrem, who founded the Bitcoin payment processor BitInstant in 2011 and is a co-founder of the Bitcoin Foundation.
The crypto-currency was developed in 2008 during the financial crisis as an alternative to traditional banking structures. It operates in a peer-to-peer network that takes financial middlemen, such as the banks that process credit-card payments, out of the equation. No surprise that it's become popular among libertarians and those who have lost faith in the financial-services industry.
Elements of cash -- that it's private, untraceable and used in direct exchanges -- are found in the encrypted-data flows of information that are the foundation of the Bitcoin system. Bitcoin's cryptographic network also solves for a problem that digital cash schemes have faced in the past: double-spending, which is when users try to use a single token twice. (This has some programmers excited about the Bitcoin network's potential as a building block for new digital systems.)
So, yes, in practice, any online option is less cumbersome than a pocket full of coins. But with Bitcoin, that convenience is a perk, not the purpose. In the larger financial-ideological debate, Bitcoin and cash are on the same side.
(Kirsten Salyer is social media editor for Bloomberg View. Follow her on Twitter.)