|Bitcoin logo (Wikmedia)|
“It’s gold for nerds.” This is a quote by American writer, comedian, and (former) television host Stephen Colbert. No, he is not referring to the Samsung Galaxy s6 or even the new Apple iWatch. Mr. Colbert is talking about the Bitcoin. What is the Bitcoin? I’ll tell you. The Bitcoin is an encrypted, computer-based currency whose network is independent of a central bank. It is better known as a “cryptocurrency.” When it was first developed, the Bitcoin was considered to be a breakthrough in computer science and cryptography. It was the first currency that was able to transfer data anonymously and safely. Once a Bitcoin had been sent, only the intended recipient could receive the money. Bitcoins could be bought and sold by anyone, and its popularity was growing rapidly. Things have changed a lot since the Bitcoin first started up, however. Lately, the Bitcoin has been having major troubles dealing with hacking. Additionally, its market value has been fluctuating rather wildly, rising and dropping in the most unpredictable manner. Can Bitcoins be policed in a manner that promotes their legal usage and stabilizes the currency, but prohibits their usage for criminal activity? I believe the answer to this is no. The economic risks and legal issues of the Bitcoin outweigh its benefits; therefore, the Bitcoin ought to be removed from circulation as a viable currency.
Contention 1: The Bitcoin can be easily used for illegal activity.
Let me introduce Ross Ulbricht to you. Ross is the creator of a group called the Dread Pirate Roberts. This group created the first major drug-selling website: the Silk Road. Ross and the Dread Pirate Roberts are just common criminals who have used the technology around them to make themselves virtually untraceable. How? First of all, they used a tool called Tor. Tor is a technology that allows a website to be created with anonymous servers. In layman terms, Tor helps you make and access sites that are part of the infamous “Dark Web,” a large part of the internet that is completely untraceable. Second, the Dread Pirate Roberts used the Bitcoin for all transactions within the site. Because Bitcoins are also generally untraceable, all buyers and sellers using the Silk Road remained anonymous. After several years, the FBI finally caught the Dread Pirate Roberts and located their servers in Iceland. They also discovered a large stash of Bitcoins on Ulbricht’s computer. There is one very important thing about this story. The FBI only caught Ulbricht because of an identity error he made when the Silk Road was just starting up. If Ulbricht had not made this error, the FBI would still be searching hopelessly for the group responsible for the Silk Road. As stated in the Economist, “Installing backdoors into encryption on popular chat apps, as Britain’s prime minister David Cameron would like to do, would not have caught Mr. Ulbricht, and they will not catch any of the entrepreneurs who have copied and improved his design since. As a result, dark web marketplaces will continue to thrive for as long as it is possible to post vacuum-sealed drugs without their getting intercepted.” The Bitcoin has opened the doors to a countless number of problems starting with its ability to aid criminals in the creation of illegal marketplaces. For this reason, the Bitcoin ought to be removed from circulation.
Contention 2: Contrary to its claims, the Bitcoin is vulnerable to cyberattacks.
In truth, the Bitcoin is not as secure as its creators and promoters claim it is. One of the main reasons why the Bitcoin was originally considered as such a bright prospect for the future of currency was because people thought it could never be stolen. This was proven completely false after half a billion dollars worth of Bitcoins were stolen from Mt. Gox, a company based in Tokyo. As stated by Michael Casey and Paul Vigna in their book Bitcoin and the Digital Currency Revolution, “[Bitcoin] wallets have proven vulnerable to cyberattack and pillaging, including the wallets of big exchanges such as Tokyo’s Mt. Gox and Slovenia’s Bitstamp. Even though the core program that runs Bitcoin has resisted six years of hacking attempts, the successful attacks on associated businesses have created the impression that Bitcoin isn’t a safe way to store money. Until these perceptions are overcome or Bitcoin is replaced by a superior digital currency, the public will remain suspicious of the concept, and regulators will be tempted to quash it.” As a result, market price of the Bitcoin has dropped from $675 in June 2014 to $228 in April 2015. This is a major blow to the Bitcoin and is simply another reason why it is not a viable currency.
Out of all of the arguments brought up by supporters of the Bitcoin, there is one that stands out. The Bitcoin has very little or no transaction fees. Having zero transaction fees on all of your charges can be quite an attractive option. Nowadays, this is especially nice because credit card companies are constantly adding their own surcharge to every one of your transactions. According to the Wall Street Journal, the Bitcoin’s absent or significantly lowered transaction fees could save the United States government trillions of dollars. The second major opposing argument is that the Bitcoin has potential to connect the entire world to the modern economic system. Currently, there are many third-world countries that are unable to develop due to their severely unstable economy. Bitcoins can be bought or sold by anyone in the world; therefore, people from developing countries simply require a computing device to become connected to the global economy. As stated by Marc Andreessen of the New York Times, “Many people in many countries are excluded from products and services that we in the West take for granted. Even Netflix, a completely virtual service, is only available in about 40 countries. Bitcoin, as a global payment system anyone can use from anywhere at any time, can be a powerful catalyst to extend the benefits of the modern economic system to virtually everyone on the planet.” These are the main reasons why others believe the Bitcoin has great potential and ought to remain as a currency.
Extreme fluctuation of Bitcoin market value can be seen in the graph above (Blockchain)
I disagree with the opposing arguments for several reasons. Though I cannot disprove the fact that the Bitcoin has very low transaction fees, I can show that this benefit is meaningless. First of all, the market price of the Bitcoin fluctuates wildly. As aptly put by the Wall Street Journal, “Who wants the cost of their groceries to vary by 10% from week to week?” This trend can be seen in the graph shown above. Second, there are very few people that use the Bitcoin. Some have even declared the currency to be dead. Billionaire Warren Buffett’s advice in relation to the Bitcoin was strongly voiced: “Stay away.” A simple analysis of these two points show that the Bitcoin has not been attracting many people lately. Low transaction fees have not been able to change this, rendering it immaterial. The second opposing point was that the Bitcoin could connect the world to the modern economic system. As I have shown previously, if the Bitcoin is not being commonly used, there is no economy that the world can be connected to. In addition, the Bitcoin is supposed to help developing countries stabilize their economy. As seen previously, the Bitcoin is perhaps one of the most inconsistent currencies there are. For these reasons, I disagree with the opposing arguments.
The Bitcoin is not a viable currency for several reasons. As I have shown, the Bitcoin has and can be easily used for illegal activity. The biggest example of this was in the case of the Dread Pirate Roberts and their Bitcoin-based, drug-selling website. The second reason is that the Bitcoin is vulnerable to cyberattacks. This was seen in the scandal involving the Tokyo company Mt. Gox when 500 million dollars worth of Bitcoins were stolen. Third, the market value of the Bitcoin fluctuates too much. Everyday shopping would become more of a gamble than an errand. Finally, there are few people in the world that use or accept the Bitcoin. All of these reasons stated show that the Bitcoin has very little potential. In conclusion, the Bitcoin ought to be removed from circulation, for it will not be a viable currency.