For months now, Bitcoin soothsayers have proclaimed that the virtual currency is going to Change Everything. The mass adoption of Bitcoin, they told us, would utterly transform the way the world stores and exchanges value. Government-backed currency would become obsolete. Farmers in Kenya would use the same Bitcoin-based payment systems as cafés in the Mission. With the future of money in the hands of Satoshi Nakamoto’s brilliant protocol, inexact central planning would be replaced by algorithmic decentralization.
Of course, none of that has happened. And it’s exceedingly likely that none of it will.
You’ve probably heard about the bankruptcy of Mt. Gox, a former Magic: The Gathering card exchange that morphed into Bitcoin’s largest trading floor before being wiped out by a nearly $500 million heist. But even before that, new knocks to Bitcoin were coming fast and furious: the arrest of Bitcoin prodigy Charlie Shrem; the consolidation of Bitcoin mining operations in a way that threatened to undermine the rules of the currency itself; the successive (and utterly predictable) shutdowns of Silk Road and Utopia. Today, another nail hit the coffin courtesy of Flexcoin, a so-called “Bitcoin bank” that announced that all its users’ accounts had simply vanished.
These may seem like isolated incidents, but together, they add up to a massive, damning breach of trust. I don’t doubt, as Nobel laureate Robert Shiller put it last week, that “something good can arise from [Bitcoin’s] innovations.” But Bitcoin itself will never recover from these initial pratfalls. Partly this is because lawmakers and regulators, spooked by early hype and the Mt. Gox disaster, are never going to afford Bitcoin services the kind of autonomy they’d need in order to flourish. Partly it’s because there are conceptual problems with the Bitcoin architecture itself. And partly it’s because Bitcoin’s anarchic roots are too fringe to draw in the masses. In the mind of the average American, the currency is now synonymous with theft, drugs, and techno-wizardry. These impressions do not a global currency make.
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