Bitcoin: The past, present and future

December 29, 2013

By Nauman Ghani

Bitcoin’s appeal lies in being anonymous, untraceable, and unregulated. These attributes give the virtual currency appeal to a broad spectrum of speculators and investors, entrepreneurs, and the criminal underworld — including drug traffickers, terrorists, and anyone wanting to circumvent currency or tax regulations.

Recent events such as the shutdown of Bitcoin marketplace Silk Road, where anyone could purchase drugs, guns, and even hire a contract killer, demonstrate the government’s position on Bitcoin-related crime. At the same time, financial regulators have taken steps to pull Bitcoin toward compliance with currency laws. Bitcoin’s long-term future is being a regulated financial instrument that serves certain purposes; in other words, once the dust settles, Bitcoin will become a niche financial services product. Is Bitcoin the future of money?

Although the number of Bitcoins has grown, it is an exaggeration to say that many people have gravitated toward this virtual currency. Ask the average person on the street about Bitcoin and you will be see lots of blank stares because it is not a mainstream phenomenon.
Still, for the geeks and techies who know about Bitcoin, there is an allure for two main reasons:

The coins can be “mined,” or discovered, for free using computers and math. There is nothing like the allure of free money to attract interest.

As Bitcoins gain popularity, volatility and spikes in value mean that some speculators may earn quick returns. Of course, the nature of transactions means that others may lose just as much.

First of all, as innovate as bitcoin is, central banks will not simply relinquish control over money. Still, Bitcoin has appeal as an efficient and private means of exchange that is completely unregulated by any government. As a peer-to-peer currency, Bitcoin is a great leveler of pure value and speculation. Bitcoin represents the spirit of libertarianism – free, unfettered, and uncontrolled. However, the same attributes that make Bitcoin attractive to those with anti-government philosophies also make it a perfect currency for illegal transactions. Untraceable, untrackable, and without physical existence, Bitcoin is the ideal means to buy drugs, move illegal cash across borders, fund terrorism, and stash ill-gotten gains without government interference.

Conventional currency works precisely because we trust that it is reliable, ubiquitous, and relatively stable. Without government backing, Bitcoin is subject is to wild swings in valuation based on speculation and greed.

How popular can a currency become when the price is wildly volatile and liquidity is not guaranteed? Imagine going to the store with prices changing by the minute. Then, you go to the ATM for cash but there is none available because the banks have all run out of money. Even worse, the banks have no idea when they can again issue cash, despite their promises to the contrary. That scenario describes what would happen if Bitcoin were our currency today. Not very appealing, is it? But how is it doing in Canada?

The Canadian Bitcoin community has come far in the past six months. Earlier this year, all that Canada had to show in the Bitcoin world was a few restaurants accepting Bitcoins in Vancouver and Edmonton, two exchanges and Meetup groups of less than 10 people a month. Now, we have a fully-fledged 1400-square-meter Bitcoin embassy (i.e. a startup incubator dedicated to all things Bitcoin) in Montreal and Toronto recently celebrated the launch of the Vault of Satoshi’s Bitcoin exchange as well as Coinkite, a full service Bitcoin bank. This week, a Bitcoin ATM launched in Vancouver. To top it off, the Bitcoin Alliance of Canada will be making its official launch this month.

Germany has become the first country in the world to officially recognize and define Bitcoins as a financial instrument in the German Banking Code. A move like this by Canada would set clear cut rules and standards to apply to Bitcoin startups and remove a great deal of the regulatory uncertainty. This would open the taps to American venture capital, eager to get early mover advantage while the various states and Federal regulatory authorities get their act together across the United States.

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