Since the launch of Bitcoin in 2009, global finance has been witnessing a change. At first, the advent of cryptocurrencies was largely invisible to the financiers and movers. This happened because, like all successful changes, it started small and then grew, and grew. Bitcoin has more and more traders coming on board, and its recently discovered (relative) stability must surely make it even more attractive for both retailers and consumers.
It will be more attractive for retailers as a reduction in volatility will make the currency more popular with consumers and, therefore, generate a significant trade volume; for the consumers, a stable value will mean cheaper purchases as retailers will, via increased competition, act to reduce the margin that is applied to stock to cover the volatility risk.
Bitcoin has, so far, worked.
[dropcap size=small]W[/dropcap]e should have confidence in it as a means of payment even if there are, well founded, concerns about its short-term worth as a store of value. However, there may be other matters that we should consider. In cryptocurrencies, Bitcoin is clearly the brand leader. It was the first and is still the strongest; it has become, not to put too fine a point on it, the standard by which other cryptocurrencies are measured by. Bitcoin is good at what it does. It is not great. There have been both security concerns as well as speed of transaction confirmation worries.
Possibly, the most recent worldwide example of a sweeping technological change, before the advent of Bitcoin, was the development of personal computers or, as they were known originally, microcomputers.
The first commercially produced ‘desk-top’ computer was the Olivetti Programma 101, launched in 1965; it sold at the time at a cost of $3,200. I do not intend to get mired into the multi-stage technological and production developments that occurred in the following years, but I will mention the 1977 “Trinity”, the Apple II, the TRS-80 and the 4K and 6K, Commodore Pet 2001. At around the same period, there were two huge developments that slipped under the radar, Atari launched the 400 and 800 models in 1978, and these two machines offered a greater level of performance to the market leaders. The second development was the arrival of the Sinclair ZX-80 in 1981 and then the Sinclair Spectrum.
At this time, you would buy your ZX-80 for eighty quid, mail-order, and assemble it yourself. There were rich kids that could pay just under a hundred quid and get it pre-assembled, but I wasn’t one of those. When the computer was ready, you plugged it into your television and loaded the program, this involved plugging in, or interfacing, a cassette recorder that took directions from a set of cassette tapes and sounded like a duck choking on a kazoo. These computers were programmed in BASIC and could carry out complex functions, once you’d written the program, of adding two numbers together, or even finding the average of three numbers, complex stuff. Operating systems were still a long way off.
Remember though, the first desk-top computer was the Olivetti Programma. The final fate of Olivetti is well known as the company made poor decisions with technology and the list of computer manufacturers that have fallen by the wayside in the intervening years is somewhat enlightening.
Technology changes, it doesn’t just run along; it gallops. This is an important point to remember when we are looking at cryptocurrencies. We are five years into a revolution, maybe we should take the time to look at where we are.
Bitcoin has done well, it seems to have seen off the hoarders and live through the November-December period of investment panic. There are issues with the transaction confirmation speed; Bitcoin is slow, painfully slow. Quark can confirm transactions in seconds, it claims to be ten times faster than Bitcoin, and with nine rounds of hashing from six different hashing functions it is de-facto significantly more secure. But on the obverse, it has been significantly pre-mined and there are concerns about its ownership. Quark has been dropping in value since its launch. It has great stability though; it must be pointed out that stability is not as attractive an asset when the value is constantly dropping.
Then we have Bitcoin and the other security problem, all transactions are recorded, forever, in the blockchain. I know about the ‘public keys’ but the fact remains that all your transactions are visible to everyone, they are not just visible today, but will be visible tomorrow, and all tomorrows, with tomorrow’s technology. Be careful, therefore, what you choose to buy. Laundries are even worse, a great idea, but you may be swapping bitcoins with someone with an even worse purchase history, and this is assuming you get your bitcoins back! Zerocoin, on the other hand, comes from the Bitcoin family will offer a higher level of anonyminity. It uses the Bitcoin blockchain and may, therefore, suffer from the same mining/confirmation issues.
I see Bitcoin as the first generation of a cryptocurrencies, but altcoins I believe, based on what happened in computers, will come to the fore that may well replace Bitcoin. Cryptocurrencies that are simpler to use, safer to use, faster to mine and easier to sell to the public. Better cryptocurrencies will lead faster to mainstream use. Litecoin is faster, two and a half times faster, and litecoin is the second largest of all the cryptocurrencies.
George Selgin, an economics professor at University of Georgia who recently published a paper on Bitcoin properties, believes that Bitcoin’s design does indeed leave room for competition:
“In the long run, its rigid supply is hardly likely to make it a relatively stable—let alone ideal—money, so there’s room for new rivals that can ultimately outstrip it.”
He went on to also say:
“It could, in the long run, give rise to one or several very robust currencies. That’s how competition works generally, with winners and losers, but with quality generally improving as the struggle goes on. The fact that established currencies such as the dollar will exist alongside as a (relatively) safe haven should cushion very severe shocks to individuals as competing currencies duke it out.”
We may look on and wait for developments, but let us not tie ourselves to a technology that may well soon become obsolete. If life teaches us anything, it teaches us that the only constant in life is change.
Featured image by Shutterstock.