Carl Miller ponders a future when “normal people like you and me” commonly use digital currency like Bitcoin. “When bitcoin does indeed step over the threshold and into our world as a living currency,” he writes, “the possible challenges will make Silk Road trading seem like small fry”:
Peer-to-peer currencies reduce the ability of central banks to manipulate the money supply; have significant implications for how to track illegal transactions and may erode tax raising powers. Rubbing salt into the wound, it is now bitcoin miners, not Governments that receive ‘seigniorage‘, revenue earned by issuing the currency. Many bitcoiners are avid anarchists, who may wish and actively work to keep bitcoin separate.
In truth, no-one can be sure what will happen. Chinese authorities have in the last few days banned their banks from handling bitcoin and, anyway, it may not be bitcoin that eventually triumphs. Peercoin, Anoncoin, Zerocoin, Litecoin are all bring different strengths and benefits, from privacy and anonymity to the efficiency of the transaction. What bitcoin is however showing us is that Vires in Numeris ["Strength in Numbers"] is not ringing hollow. We will likely wake up to a world that uses currencies secured by cryptographical systems, and it is time that our social and political institutions seriously consider what this will mean for them and the people they protect and represent.
But, for Alec Liu, China cracking down proves that Bitcoin has a long way to go toward becoming a respectable currency:
[A]s much as the Bitcoin world loves to tout the latest store to accept Bitcoin, its utility in buying regular things still lags behind traditional currencies and platforms.
As we’ve already seen, Bitcoin’s ability to circumvent regulation is the sort of stuff governments won’t put up with for very long, and given Bitcoin’s reliance on centralized exchanges, it’s only a matter of time before those gateways are closed. China’s out, too. Hopeful Bitcoiners looking to India as the new hotbed of demand from a populous developing nation will likely be disappointed. The world’s second largest country by population will presumably follow the lead of its peers, while its relatively low per capita means that its citizens wouldn’t have the appetite or disposable income to make a real dent anyway. The only solution then is for Bitcoin to actually become useful.
Yglesias adds that Bitcoin has always relied on the laxity of regulators:
By using a bitcoin exchange as an intermediary, a Chinese person could sell yuan and a non-Chinese person could buy them. But this was going on more or less because the Chinese government was letting it go on. Like one of those “tax loopholes” that stays open because members of congress agitate in favor of keeping it open. Now the Chinese government has decided to close it—BTC China, the country’s main exchange won’t be taking any new deposits—and bitcoin prices are tumbling. Now if this does manage to play out that somehow the technology behind bitcoin is so sound that the PRC government can’t stop people from using it to implement exchange controls, that’ll be interesting (and probably unfortunate—judicious use of capital controls is good policy). But as of [last Wednesday] morning it looks like the party is over.