Bitcoin (unlike many other cryptocurrencies) does meet many of the requirements of fiat money but as an institution some of its advocates have been doing it few favours. Many members of the general public see Bitcoin as a scam and in order to sell it to these people we must deal with the thorny issue of trust. In order to establish trust I would contend that we, as advocates, should consider changing our emphases to improve stability and thereby increase acceptance. We will have an immersed society when a citizen can pull up at a shop and order a pizza using bitcoins to pay, not as a once off or novelty purchase but as a normal and common transaction. The question is: How do we get from here to there?
The Gold Problem
In the past gold was chosen as a most suitable metal for coinage and gold coins had the advantage that the value of the coin directly reflected the value of the gold bullion that the coin held. Currency was backed by precious metals and people had confidence. However, crooks arrived and shaved the edges of the coins thereby debasing them. In order to restore and maintain confidence in the currency, many countries deemed that debasement became a capital offence. People that counterfitted these notes and coins were also subject to the rigors of the law. Banknotes were initially backed with gold and each nation would hold stores of bullion to support their currency. These policies ensured that the general public developed confidence over a period in the country’s coins and notes.
Keeping ahead of the crooks
Today, cryptocurrencies are suffering from some problems: Bitcoin has received bad press as a result of people manipulating transactions in order to facilitate double withdrawals. This may have been at least a part of the problem with Mt Gox; if so, it was certainly not the only problem. People cannot be expected to have confidence in crypto when money is being manipulated from within supposedly secure digitally encrypted accounts. People must have confidence that technology will keep their coins secure and not suffer from a gnawing fear that the same technology is being manipulated to undermine the currency and to take their hard earned funds. We must ensure that the people who have committed these criminal acts be pursued for the full money they have stolen; they must be subject to some form of sanction and levels of security on the relevant exchanges, as well as individual wallets, must be improved.
Perhaps we should adopt a similar model to the Quark coin, very secure and very fast although I am much concerned with the level of pre-mining and what this means. It is very damaging for people who are non-techy and trying to understand cryptocurrencies when they hear about pump and dump schemes which the majority of the 200 plus cryptocurrencies seem to be. I believe that Bitcoin can become the gold that supports other cryptos, Litecoin can be, therefore, seen as the silver, but if other coins are to step up to acceptance then security levels must immediately improve. We should learn from what happened Flexcoin and Poloniex this week, next week the bad press coming may well act to push crypto back further.
Image courtesy of paolofefe.