Bitcoin's payment technology may be a game-changer. Photographer: Kiyoshi Ota/Bloomberg

Two Views of Bitcoin's Future

Stephen L. Carter is a Bloomberg View columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park” and “Back Channel,” and his nonfiction includes “Civility” and “Integrity.”
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Felix Martin's new book, "Money: The Unauthorized Biography," is thoughtful, provocative and great fun to read, even when you want to argue with it. The author, an economist who holds a doctorate from Oxford and formerly worked at the World Bank, is now a partner at Liontrust Asset Management. He was kind enough to answer a few questions by e-mail last week. His comments on the current controversy over Bitcoin are sufficiently intriguing that I quote them here in full.

In my view, Bitcoin has two aspects to it.

One of these -- its status as a virtual money, not issued by any state -- is, I believe, a bit of a red herring.

The other -- its incorporation of an innovative payments technology -- could, on the other hand, be something of a game-changer. The facts that Bitcoin has no physical existence and is not a creature of government are not distinctive. The reality is that all money is virtual, and always has been -- because money is just the set of ideas that make up a system of transferable credit. And history is full of moneys issued not by any state, but by private companies, individuals or groups. There are thousands in circulation today -- from London's Brixton Pound to upstate New York's Ithaca Hours.

So there is nothing new about Bitcoin, the private money. As such, it is running up against the same practical limits as any other private money. They work well amongst small groups united by some common ideology. When they circulate more widely, however, they tend to suffer wild gyrations in value induced by crises of confidence in their purely fiduciary value. For this reason, I would not recommend that anyone try to get rich by "investing" in Bitcoins themselves.

Bitcoin is more than a just private money, however. At its core it is also a new way of transferring credit between individuals and verifying that such transfers have been made. This is its so-called distributed public ledger technology. It is in principle quite separate from its role as a private money: It could just as easily be used to make payments in dollars, euro or yen.

This distributed public ledger technology is an exciting innovation, since it has the potential to disrupt the antiquated bank-based payments system that our money currently depend on. Of course, its security has come into question in the past few weeks. But if these problems can be addressed successfully, then the future may be bright for Bitcoin, the distributed public ledger payments technology.

The irony is that if Bitcoin does prove itself in this way, it will be highly unlikely to continue as a purely private initiative. It will have to find a regulatory accommodation with central banks -- just as the ingenious entrepreneurs who invented the current, bank-based payments system did before it.

I will post more of the interview later.

(Stephen L. Carter is a Bloomberg View columnist and a professor of law at Yale University. He is the author of "The Violence of Peace: America's Wars in the Age of Obama" and the novel "The Impeachment of Abraham Lincoln." Follow him on Twitter at @StepCarter.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

--Editors: Michael Newman, Stacey Shick.

To contact the author on this story:
Stephen L Carter at

To contact the editor on this story:
Michael Newman at