At first glance, four-year old Bitcoin seems like a somewhat of a novel or idealistic concept: a digital currency created by a hacker (whose identity remains unknown to this day) that can be exchanged independently of the world’s central banks, financial institutions, and the like.
On Wednesday, however, a single bitcoin had reached a dollar value of about $49, a long way away from the 5 cents it was worth back in 2010. This is not to say that the currency has not seen some wild fluctuations over the past few years. For instance, in 2011, the trajectory of bitcoin’s dollar value went from $1 to $28, and then back to $7.
But Wednesday’s milestone was more the result of the currency’s growing legitimacy than it has been. Already, reputable online sites such as WordPress and Reddit are accepting bitcoin payments. Perhaps more significantly, the Silicon Valley Bank Coinlab just announced a partnership on Feb. 28 with Mt. Gox, the proprietor of the world’s largest bitcoin exchange. The concept of virtual currency received more validation in the form of Amazon.com’s (AMZN) announcement in mid-February regarding plans to create their own digital coins.
Meanwhile, bitcoin’s move could be significant for its own prospects. Bitcoin’s most attractive features include freedom from central bank regulations; indeed the currency is “printed” using heavy-duty software and hardware that use increasingly complex algorithms designed specifically to produce new coins at a reasonable rate. This hardware and software is known for its relative immunity from hacking and other sorts of disruptive interference. Currently, about 250 bitcoins are being printed every hour. Furthermore, bitcoin transactions are relatively free of the fees normally associated with transactions involving “normal” currency.
It is difficult to imagine a type of currency that is not at the mercy of a central bank or Federal Reserve, completely free from government intervention. Furthermore, bitcoin is designed for anonymity, and herein lays the real importance of the partnership between Mt. Gox and Coinlab.
It seems as though it is not possible to talk about bitcoin without having to mention that it has become the currency of choice for the online black market- everything from illegal narcotics, contraband, money laundering, contract-killing, and any other sordid thing you could imagine could theoretically be paid for in bitcoins, or has already been according to many. But Coinlab, as an actual bank, is subject to anti-money laundering and know-your-customer regulations, so it will be interesting at the very least to see how the decentralized currency will resolve conflicts that will arise between its promises of anonymity on the one hand and government regulation on the other.
Right now, there are around 11 million bitcoins in circulation. While the currency is subject to the whims of speculation like any other, it has built-in safeguards against the traditional pitfalls of nation-state monies, suggesting that this could be the beginning of a truly global currency.
