Can a virtual currency save our global economy from collapse?

In the wake of one economic disaster after the other, it makes sense that some might seek out an alternative way to buy and sell goods, one unaffected by inflation or the whims of Ben Bernanke. In the latest issue of Technology Review, James Surowiecki explores one such option, the Bitcoin, that is growing in popularity both as a means to an alternate economy and a way to invest for the future.

The bitcoin is a kind of virtual currency, to be exchanged anonymously through peer-to-peer networks for services and goods. All transactions take place outside the reach of banks or government treasuries. In the year and a half since its release in January 2010, it has grown from a curiosity to a major form of investment, and, to some, a digital savior for the global economic crisis looming around the next crash.

Surowiecki thinks this kind of thinking is unrealistic:

Bitcoin is not going to make government-backed currencies obsolete. But while the system’s virtues, such as anonymity and the lack of bank fees, may not matter much to most consumers, one can envision it being useful in a variety of niche markets (some legal, others not, like recreational drugs). Where anonymity is valuable, where trusted third parties are hard to find or charge high rates, and where persistently high inflation is a problem, it’s possible that bitcoins could in fact flourish as an alternative currency.

The future of the bitcoin has yet to be decided. Its worth fluctuates daily and has had a volatile lifespan, with equivalencies ranging from mere pennies to $33 per unit. Speculators have taken to hoarding the digital money, which might end up destroying its value over the long haul. Either way, the idea of a virtual currency overtaking our physical one is not as outlandish a proposition as one might have thought decades ago. Ubiquitous credit card debt? $14 trillion deficit? People, we’re living with a virtual currency already.

-Jon Irwin

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