The political heart and soul of bitcoin may very well be doomed by the very system it tried to abolish, but many of the digital currency’s technological innovations may very well survive.
"Bitcoin, the decentralized, mainly digital currency that is neither issued nor guaranteed by central banks, has always seemed like a magic trick. Rather than spinning straw into gold it transforms wasted computing power into money that people will actually accept as payment," Henry Farrell, associate professor of political science and international affairs at George Washington University, wrote for the
Financial Times.
"Bitcoin, if it became broadly accepted, would challenge states’ dominance of the economy. It is designed to prevent monopoly by states or other entities, building a new currency based on shared information and making it hard for any entity to gain control. Politics disappears and a combination of technology and cryptographic proofs is conjured up in its place," he wrote.
"Unfortunately, the magic is wearing off. Some of the technological innovations associated with bitcoin will stick around. The political project will not. Rather than overcoming conventional politics, bitcoin is succumbing to it," he wrote.
The problem is centered around bitcoin's
blockchain, which is a public, decentralized ledger that records every single bitcoin transaction.
Blockchain can be used to secure and validate any exchange of data, including real assets, such as commodities or currencies. Bitcoin's blockchain was the first, but others have since been built that offer additional features and can be programmed. That means the technology can enable so-called smart contracts: agreements that are automatically executed when pre-determined conditions are met.
Stock exchanges are embracing blockchain, which allows Bitcoin users to conduct secure transactions without middlemen, as they seek to diversify and boost profit margins. When used to issue securities, the technology could potentially remove the need for clearing houses,
Reuters has reported.
And more than three dozen of the world's biggest banks, including HSBC and Citi, have tested a system for trading fixed income using the technology that underpins bitcoin.
"The excitement of the bitcoin blockchain, to people in the digital currency world, is the potential for decentralized applications to be built on top of it that cut out the middle man. And the blockchain can be used to store and send anything of value, so there are companies using it to store documents like property deeds and even marriage licenses,"
as
Yahoo Finance explained.
But there have been problems with blockchain technology.
"The problem is that coming up with a fix requires political agreement. Because there is no centralized authority within bitcoin, there is no one who can impose a mandate. Bitcoin’s creator, the pseudonymous Satoshi Nakamoto, apparently vanished years ago, leaving big decisions to an increasingly quarrelsome community," Farrell wrote.
And while bitcoin itself may not survive, its technology just might.
JPMorgan CEO
Jamie Dimon said bitcoin "is going nowhere... There is nothing behind a bitcoin, and I think if it was big, the governments would stop it."
As Dimon said on CNBC last month, "The blockchain is a technology, which we’ve been studying... and yes, it’s real. If it proves to be cheap and secure it will be adopted for a whole bunch of stuff."
(Newsmax wire services contributed to this report).
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