Friday, June 11, 2010


As a Top-10 open source application I ran across Bitcoin, a digital currency. I studied it and found this currency very intriguing. There is no central point (such as an issuing central bank or issuing corporation) and there is nothing (no material goods such as gold) that backs it up. Here are some key links to inform yourself about the working and principles of Bitcoin: home page, Wikipedia, a blog entry on, and a summary blog on The Monetary Future.

  • Since there is no central point it is less likely to be manipulated and control is outside the sphere of one powerful organization (like the FED, a central bank, or a corporation).
  • There is no inflation, the Bitcoin currency is limited to 21,000,000 units, i.e. BTCs, brought into existence slowly over time.
  • It cuts out the middleman (i.e. banks) as individuals can trade directly with each other without the need to go through a banking system or a clearing house. That makes it more efficient, cheaper and reduces dependencies, i.e. risks.
  • It is more libertarian as transactions are not monitored by governmental agencies and can be done with anonymity. However, if such a currency were to become popular, it is nearly certain that legislation would be put in place to require individuals to report on such transactions. It would be treated like off-shore banking by governmental agencies.

  • As a weak point I see stability. Clearly the interchange value to other currencies will fluctuate. That's fine. But what will give it intrinsic stability? Apparently intrinsic stability comes from trust into the currency, but as we know trust levels can fluctuate and even be manipulated (e.g. through the media).
  • It is electronic money requiring some sort of electronic device to carry the currency with you. Today this is a laptop. In the future this could be your cell phone and you could carry that to the local store to buy a loaf of bread and pay through a transaction initiated by yourself on your cell phone at the checkout.
Bitcoin can be part of a competing multi-currency infrastructure providing a solution to our monetary problems.

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