Magazine article Foreign Affairs

Bitcoin and Stability

Magazine article Foreign Affairs

Bitcoin and Stability

Article excerpt

To the Editor:

Benn Steil ("Taper Trouble," July/ August 2014) makes an all-too-common error in dismissing the role of Bitcoin in world monetary affairs: equating the currency with one service provider. The collapse of Mt. Gox, a large Bitcoin exchange based in Japan, did roil the Bitcoin world. Mt. Gox tried to blame its downfall on the Bitcoin protocol, but it was actually the exchange's inattention to the protocol that caused its problems. If a large U.S. bank collapsed as a result of poor accounting and bad cash management, few would see cause to argue against the U.S. dollar; likewise, assessments of Bitcoin's role in monetary affairs should be based not on Mt. Gox but on the protocol itself.

The Bitcoin protocol can be thought of as a global public ledger optimized for value transfer. Anyone can add entries to the ledger, known as the "blockchain," and nobody can erase them. Cryptography secures assets recorded on the ledger and ensures its integrity. …

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