In the summer of 2012, the Korean rapper Psy made it big. His hit single, “Gangnam Style,” went viral. It received millions of views and even got a shout out from President Obama. As the months passed, it soon fell from the grace of the Internet. By early 2013 if you mentioned the song, you would hear a collective groan. The song was soon sent down the garbage disposal of the Web, where it met the rapper Krispy Kreme and the Chocolate Rain guy. Popularity quickly diminishes online, making 15 minutes of fame into 15 seconds.
Most of these Internet fads can be easily dismissed as frivolous. For example, “What Does the Fox Say” was clearly ridiculous. I mean, come on, we all know the Fox espouses hardcore Tea Party rhetoric. The Internet itsel, is not viewed as frivolous as a whole by our society. When talking about the rise of new media, buzzwords like revolution are thrown around. For good reason too, as the Internet has been a catalyst for political and economic change. An example of this is Bitcoin.
According to Reuters on Feb. 25, 2014, Bitcoin is a digital currency that exists independently from the banking system and any government. Bitcoin is currently accepted by mainstream digital retailers like Overstock.com. Bitcoins have also been used to buy illegal drugs, weapons, and to fund protestors of corrupt regimes. Bitcoin, since its inception in 2009, has never been widely accepted as a suitable currency to conduct transactions in. It has had some degree of success. For example, according to Wall Street Journal Market Watch on May 10, 2013, Bitcoin was studied by money transfer player Western Union. As late as Feb. 10, 2014, Bitcoin was being seriously looked at by Western Union.
The good times appear to be over for the Bitcoin. According to PC World on March 17, 2014, Mount Gox, formerly one of the largest Bitcoin exchanges, was compromised. Mount Gox lost customers’ Bitcoins to malware created to steal the digital currency. The malware would download the coins to a server in Bulgaria.
In addition, Bitcoin is challenged by several political hurdles. The first obvious political hurdle is in the United States. According to Reuters India on Feb. 27, 2014, Federal Reserve Chairwoman Janet Yellen has called on Congress to pass legislation regulating Bitcoin. If the United States were to regulate Bitcoin, it would lose a lot of its luster. According to the Huffington Post on Jan. 3, 2014, Ron Paul has led a libertarian charge to accepting Bitcoin. Ron Paul in early December stated that Bitcoin would destroy the dollar. Some libertarians and anarchists have taken this love to a whole new level. According to The Economist on Dec. 25, 2013, a group of Ron Paul fans, libertarians, and anarchists have created a community where the only currency is Bitcoin. The community will be named Galt’s Gulch, coming from the name of the main character in Ayn Rand’s “Atlas Shrugged,” John Galt. Libertarians love Bitcoin and make up a significant part of its users. They enjoy the somewhat anonymous nature of the currency along with its freedom from government interference. Regulating Bitcoin would make Libertarians flee it. Any plans for a regulated Bitcoin kills the appeal of the currency to this segment of the market.
One could legitimately argue that libertarians are not as large a percentage of Bitcoin consumers as they were just a few years ago. This is very true. Bitcoin has gone mainstream and has been adopted by many of those outside the Libertarian movement. The question one must ask is what these non-libertarian consumers desire from Bitcoin. One of these consumers, according to the Wall Street Journal on Nov. 23, 2013, is the founder of Global Macro Investor Raoul Pal. One of Pal’s key reasons for recommending Bitcoin to clients is that he feels the virtual currency will eventually take a part of gold’s role as an asset to store value.
Investors purchasing Bitcoins to store value are taking a big risk given Bitcoin’s history. According to Fox Business on Feb. 27,2014, Cam Harvey, a Duke University professor who studies crypto-currencies, estimates that the Bitcoin is 20 time mores volatile than the dollar and 10 times more volatile than gold. In addition, Bitcoin went through two one-week swings of more than 50 percent of its value.
Bitcoin itself will probably fail. However, it is a prototype to something bigger. Bitcoin represents the first attempt at creating a digital currency separated from any government or banking system. Eventually, a digital currency will rise up, and it will be similar to Bitcoin. However, this new currency will have the ability to regulate itself and will not be as volatile.
The market demands an anonymous currency that does not have any connections to any government or bank system. As previously demonstrated, libertarians love the concept. According to the Washington Post on March 10, 2014, an October 2013 poll showed that 22 percent of Americans consider themselves libertarians or leaning libertarian. The political climate in the United States is getting more and more libertarian. For instance, Rand Paul recently won the CPAC presidential straw poll, demonstrating a strong libertarian influence on the GOP. The rise of political libertarianism will lead to the acceptance of a digital currency.
An anonymous digital currency is needed for populist movements in countries with totalitarian regimes. These populist movements need a way to get funding without causing harm to those funding the movement. An example of this is in Ukraine, where the protesters were funded in part by Bitcoins according to Bloomberg on Feb. 28, 2014.
The future includes a currency very similar to Bitcoin. However, this currency will not be Bitcoin. The best way to think of Bitcoin as similar to what broadcasting.com was to Netflix, WatchESPN, and YouTube. It is an idea that is ahead of its time. Although the Bitcoin may go the way of Gangnam Style, the concept itself is where the money is at.