I’ve read a few times about Bitcoin, and have certainly found the concept to be very interesting. Then, yesterday, I read more about it in Wired, thanks to a nice post by Fred Wilson. The idea of a virtual currency controlled by a non-government entity is interesting and maybe even fascinating on so many levels. I highly recommend that you read the post by Wired. It’s unclear if this currency will end up succeeding or not, there are many questions regarding how it works, who holds the power and authority, etc. There have also been other “virtual currencies” such as the one used in Second Life, discussions about Facebook credits, etc.
It Will Happen Eventually
I think the concept of having a currency that is more stable, that is able to avoid being used for political or other motives is incredibly attractive. The problem of course is that like any other currency, the concept can only work if enough people are willing to have faith. Most virtual currencies have tried doing that by making it possible to do exchanges for US dollars or other currencies. That is certainly one step, a necessary one. However, I think much more is necessary in order for this concept to work. Maybe we would need an international organisation such as the UN or the IMF to be involved. Or maybe simply having a company big enough to be believed in. But even then, if big banks such as Citibank have shown their vulnerability in the past, how can someone trust that the backing by a large corporation would be able to make the currency stable? I think that would be a big challenge under any circumstances even though as we are seeing these days, even Sovereign nations are from from risk free.
Is Bitcoin the one?
It will be difficult for any currency to prevail in this race. There have been worries about malware stealing the virtual currency, many other unanswered questions. I think there are still a lot of questions regarding the rules for this currency and how it can be used. While Facebook credits or currencies developed by Zynga or Second Life have a clear use, the rules and how those currencies could evolve over time are certainly not as clear.
Would You Invest Right Now?
What if I told you that you get a significantly return by putting part of your assets in an alternative currency such as Bitcoin for 1 year or so? For example, getting a 10% return on a 1 year investment made in Bitcoins. Would you do it? If not, why? I would say that I’m not at that point quite yet but it’s very intriguing to see if virtual or independent currencies will survive the test of time and gain influence as viable alternatives.