When the internet burst into the public consciousness in the 1990s, the days of hard cash were said to be numbered. When the digital economy, e-commerce and PayPal became entrenched at the beginning of this century, coins and notes were teetering on the brink.
So now, a decade on, and just as paperless money is becoming a reality through contactless payments and Apple Pay, why is the global financial system still far from embracing digital currency?
What is Bitcoin?
A new payment system of entirely digital money, Bitcoin – created as a response to the financial crisis, back in 2009, supposedly by a computer coder with the pseudonym Satoshi Nakamoto (the creator's true identity continues to be a mystery) – is nevertheless mostly about swerving the banking system.
"Bitcoin was originally designed to be democratised money in a crypto-libertarian sense," says Dave Hrycyszyn, Director of Strategy & Technology at London-based digital agency Head, who thinks its individualist tone makes it intrinsically Thatcherite. Autonomous software releases Bitcoins – which are actually commodities, not currency – and computers belonging to 'miners' search for them.
In theory, it's all and only about decentralisation. However, Bitcoin is no longer the reserve of individuals acting alone. "Bitcoin mining is now a capital-intensive arms race requiring both technical expertise and financial firepower," says Hrycyszyn about the dozen 'mining pools' that now dominate the Bitcoin world.
"The top two mining pools now have enough processing power at their disposal to do a deal which could subvert or destroy the currency," says Hrycyszyn. It's ended up extremely centralised; democratised digital money this is not.
"Perhaps the reverse is true," says Steven Faulkner, Head of Global Network Management at foreign exchange and payments provider VFX Financial. "Digital money like Bitcoin is concentrated in the hands of a relatively few individuals, unlike fiat currencies … venture capital firms and speculators own significant quantities of digital money such as Bitcoin."
There's also a concern that cryptocurrencies are being used for black market trading in illicit goods. In short, there's a lack of trust in Bitcoin, which ultimately affects its value. The MtGox theft of Bitcoins in 2014 and the bursting of the 'Bitcoin bubble' haven't helped, either – and nor is anyone exactly sure why it's surging massively right now. Extreme volatility is not going to win an emerging cryptocurrency any friends.
Betting on Bitcoin
However, you get a completely different story from Nick Garner, the founder of a Bitcoin casino called Oshi!, who likens cryptocurrencies to 'bottom up' innovations like open-source software. "Once banks and governments aren't in the cycle, they have no power," he says, citing their control over interest rates and ability to deflate and inflate currencies, which can have profound effects.
For Garner, it's about "individuals coming together [and] becoming more powerful than the corporates who try to control them." Is Bitcoin safe? "I would argue transactions with Bitcoin are safer than with banks, because it is impossible to do chargeback fraud," he says.