Blockchain Startup Cypherium Partners with IC3 for Scaling Research
The great achievement of Bitcoin is that we have the very first "socially sovereign" digital currency, independent of government and corporation, that is workable, technically "peer to peer", and that it creates the enthusiasm of the hacker community, which almost certainly means it will be adapted and used later by more people.
So, in this way, this is a tipping point. However, the Bitcoin design may also have some serious flaws. First of all, the way it is mined privileges the technical community itself as it can have access to networks of botnets to generate coins, in a way most people can't. Secondly it is a 'scarcity' based currency, subject to hoarding and wealth accumulation only 21m bitcoins will be created, insuring a constant growth in valuethat does not really change what is 'wrong' with the curious dilemma of the bitcoin community going separate ways current currency system.
As many so-called 'peer to peer' technologies such as crowdfunding, crowdsourcing, etc. Nevertheless, what it really shows is that socially sovereign currencies are viable, and could be created as a tool of the countereconomy, though this may require a different ruleset for its functioning. At Kakigarden we're developing a solution that is immune from those issues, and in our opinion some important the curious dilemma of the bitcoin community going separate ways to improve are:.
As I outlined in answering How can Bitcoin be hacked? It's a beautiful concept the curious dilemma of the bitcoin community going separate ways it's not secure. It can be exploited, which means it will. It's just a matter of time. The scarcity of Bitcoin is not a real, hardcore scarcity such as the scarcity of gold or platinum.
It's just defined in some lines of code. Those lines can be changed, Bitcoin can indeed be inflated and loose all of its appeal. There is a variety of ways in which this can happen in practice.
More scarily, there is hardcore economic evidence that doing so would actually benefit Bitcoin as a currency see below. Again, if it can, it will.
Bitcoin is not really P2P. As always with centralization, these two weak points are also the easiest single points of failures to exploit. In economics, a liquidity trap happens when people are unwilling to invest and keen to keep their assets "under the pillow". That's exactly the trap Bitcoin is falling in and will fall in. It was actually designed for it. Bitcoin is a deflationary currency, which means it's worth more and more as time goes by.
It did to the developers, but it actually isn't. In Gresham's terms Bitcoin is good money, while inflated central banks' money is a bad one.
What would you spend first? The bad money, because you want to get rid of it, and keep the good one for yourself. The only exception to this are illegal businesses who don't have any alternative to Bitcoin, or people where central banks have failed or are failing as Somaliland or Zimbabwe. This means that, with the aforementioned exceptions, Bitcoin is not actually a currency as it appears to be, but rather a digital store of value that can be used as a currency.
As soon as the US government will rule against Bitcoin, which could happen sooner than we think, all US businesses will be forced not to accept Bitcoin. Maybe even running the client could be deemed illegal. This will trigger drops in BTC value because the expectations for Bitcoin as a currency will drop. As other governments will follow, as it already happened with Napster and file sharing, the use of Bitcoin will be more and more restricted to criminals and illegal activities, and people where central banks have failed or are failing as Somaliland or Zimbabwe.
As soon as a better p2p currency comes along, people can sell their BTCs and jump on the other system. This means that as soon as a better alternative comes along, there will be an incentive to be the first to abandon Bitcoin, while the last ones will be heavily penalized: Think of bank runs: Here there's no bank, so what's gonna happen when the the curious dilemma of the bitcoin community going separate ways starts?
If you own Bitcoins, keep your eyes open. The current value of BTCs is artificial. They don't buy Bitcoins because they need them, but because they expect somebody will need them in future. And you know what? This is very risky, because Bitcoin has no intrinsic value. This means that as soon as it is hacked, or government intervenes, or a better alternative comes along, the value of Bitcoins can drop to zero.
That's the intrinsic value of a digital signature. Gold has an intrinsic value: You can't buy Bitcoins with Paypal. You can't convert Bitcoins to Paypal. The value of Bitcoin fluctuates enormously every day. All this means there is friction for the average person and the average business to use Bitcoins as a currency instead of the dollar. Again, only who's got no alternatives is really driven to use The curious dilemma of the bitcoin community going separate ways see above.
Remember how George Soros broke the British Pound? Currencies don't belong only to the domain of economics, but also to that one of politics. And that's why central banks have policies. If a speculator like Soros comes along with their massive buying power, they can start to use their power to do politics on the Bitcoin community, and there's no Bitcoin authority that can react. For example, a speculator can enter slowly in a massive quantity, and then sell enough and fast enough to trigger panic in the community and push Bitcoin owners to panic sell something similar already happened in Bitcoin's "black friday" on June 10th.
Such attack could be politically motivated, or financially to buy after the price drop. Bitcoin has no protection against those types of attacks. Bitcoin doesn't have the safety net of real goods, nor the one of fiat currencies.
Bitcoin is not anonymous. As one of the lead developers already pointed out, it's fairly easy to track people down unless they don't take extreme precautions.
Transactions take minutes, or even hours, to be confirmed. Given it's electronic and not physical, this slowness is a bit of a paradox. Bitcoin doesn't stop middlemen from practicing fractional reserve banking, thus inflating the currency at their own benefit. In fact, this is probably what will happen and what could partly relieve its deflationary nature.
This is the tip of the iceberg. There is much more to the future p2p currencies objective value vs subjective value, scarcity vs abundance, etcbut I feel this is a concise enough answer to the question, specifically focused on Bitcoin's immediate weaknesses rather than what the the curious dilemma of the bitcoin community going separate ways future of currency might look like.
As I said, think of Bitcoin as the Napster of central banking and banking as we've known them. The future p2p currencies will have to solve Bitcoin's technical and economical flaws, and totally redefine economics. Contrary to what most economists from Mill to Schumpeter believe, currency is not a neutral veil, but indeed the very matrix of how we interact, trade and live as a species.
As every language influences the way one thinks, currency influences the way one behaves. Mainstream currency is the most powerful and spoken language on our planet, and in the next decade it's