Bitcoin: Future or Fad?

First year BSc Economics student Lydia Evans provides a recap of an event organized by Birkbeck’s Economics + Finance Society, at which Financial Times journalist Isabella Kaminska discussed the future of Bitcoin.

What does Bitcoin mean to you?

To some, it epitomises the promise of the free market ­-  perhaps even, if one ‘mined’ it early enough, a path to becoming a millionaire. To others, it is reminiscent of Tulip Mania or the South Sea Bubble. The valuation graphs are eerily similar both in curve and timeline.

The Financial Times (FT) was started to help investors make informed decisions. Many were often victims of the Penny press. It was most germane to listen to what the FT’s Isabella Kaminska (FT Alphaville) thinks about the most popular cryptocurrency and its underlying technology, Blockchain.

Kaminska thinks that Bitcoin has been good for engaging previously uninterested parties in banking and finance. The evolution of its ecosystem also highlights the importance of harnessing the ever-expanding abilities of technology. This is as far as Bitcoin can be considered ‘on the money’.

She said that most of us have had a form of digital currency for ages, ever since we first signed up to a bank; the very basic concept of Bitcoin is not, therefore, a new one. However, unlike the technological advancement in traditional banks, she believes that Bitcoin might take us backwards.

We have no idea as to the actual asset structure or as to where it is being invested. But if capital has to be reinvested to create value, where is Bitcoin being invested?  Similarly, although Bitcoin appears to promise a dissolution of typical dealer/broker relationships, they are still very much in place.

Details regarding any potential intermediary from an established, regulated institution are readily available. There is rarely transparency when it comes to those associated with a Bitcoin Exchange. Kaminska’s research into the companies that sell and process Bitcoin showed that the vetting process is astoundingly lax.

Another claim is that it is free and easy. Kaminska thinks Bitcoin is still not user-friendly for the general public. The increasing costs could even lead to it becoming a luxury lifestyle product. Maybe, she jokingly suggested, one that could be featured in magazines such as ‘How to Spend It’.

Regulation will be the catalyst of all its future developments. It could even dismantle key principles of the whole project. This leads to a crucial question: Does Bitcoin serve a purpose or is it a solution looking for a purpose?

Perhaps Blockchain offers a solution. It has provided a means to mass collaboration that is hard, if not impossible, to get with traditional banks. But this depends upon who is collaborating and for what reasons. Due diligence is not an option in this very closed world – you are only as strong as the weakest member.

Kaminska opines that volatility undermines a currency’s usefulness. This can be demonstrated by examining any chart documenting the cryptocurrency’s history. She sees Bitcoin as a utopia for those disillusioned by, or unwilling to participate with, the mainstream banking system. Utopia is rarely what it seems.

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