Describing the problem Britain faced then, David Birch, a consultant specializing in electronic transactions, said: “We had a problem in matching the nature of the economy to the nature of the money we used.”
Birch has been talking about electronic money for more than two decades and is convinced that we find ourselves on the edge of the same shift that occurred 400 years ago.
The cause of that shift is the Internet, because even though you might want to, you can not use cash — untraceable, no-fee-charged cash — online. Existing payment systems such as PayPal and credit cards demand a cut. So for individuals looking for a digital equivalent of cash — no middleman, quick, easy — bitcoin looks pretty good.
In 1613, as people looked for a replacement for silver, Birch said, “we might have been saying ‘the idea of tulip bulbs as an asset class looks pretty good, but this central bank nonsense will never catch on.’ We knew we needed a change, but we couldn’t tell which made sense.”
Back then, the currency crisis was solved with the introduction first of Isaac Newton’s Royal Mint (“official” silver and gold) and later with the creation of the Bank of England (“official” paper money that could in theory be swapped for official silver or gold).
And now? Bitcoin offers unprecedented flexibility compared with what has gone before.
“Some people in the mid-90s asked: ‘Why do we need the Web when we have AOL and CompuServe?’” said Mike Hearn, who works on the programs that underpin bitcoin. “And so now people ask the same of bitcoin. The Web came to dominate because it was flexible and open, so anyone could take part, innovate and build interesting applications like YouTube, Facebook or Wikipedia, none of which would have ever happened on the AOL platform. I think the same will be true of bitcoin.”
For a small but vocal group in the US, bitcoin represents the next best alternative to the gold standard, the 19th-century conception that money ought to be backed by precious metals rather than government printing presses and promises. This love of “hard money” is baked into bitcoin itself, and is the reason why the owners who set computers to do the math required to make the currency work are known as “miners,” and is why the total supply of bitcoin is capped.
And for Tyler and Cameron Winklevoss (the twins who sued Mark Zuckerberg claiming he stole their idea for Facebook; the case was settled out of court) it is a handy vehicle for speculation. The two are setting up the “Winklevoss Bitcoin Trust,” letting conventional investors gamble on the price of the currency.
Some of the hurdles left between bitcoin and widespread adoption can be fixed, but until and unless bitcoin develops a fully fledged banking system, some things that we take for granted with conventional money will not work.
Others are intrinsic to the currency. At some point in the early 22nd century, the last bitcoin will be generated. Long before that, the creation of new coins will have dropped to near-zero. And through the next 100 or so years, it will follow an economic path laid out by “Nakomoto” in 2009 — a path that rejects the consensus view of modern economics that management by a central bank is beneficial.