Newspaper article International New York Times

Digital Currencies Have Yet to Prove Themselves

Newspaper article International New York Times

Digital Currencies Have Yet to Prove Themselves

Article excerpt

For Bitcoin or its peers to emerge from their niche, they have to one day provide all the crucial benefits that come with the current system of money.

Bitcoin enthusiasts may want to study a satirical etching, published in 1792, that is now in a collection at London's National Portrait Gallery. In one half, titled "French Liberty," an emaciated French revolutionary gnaws on raw onions. In the other, "British Slavery," a corpulent Englishman feasts on a giant slab of meat. The etching's message -- that a revolution is a farce if it fails to provide the basics -- hangs uneasily over the world of virtual currencies.

For Bitcoin or its peers to emerge from their niche, they have to one day provide all the crucial benefits that come with the current system of money. For now, people are forgiving of currency innovations. No one expects fledgling digital money to quickly match the status quo. Still, it is not clear that virtual currencies will ever have the strengths and scope of the current system, which, let's face it, functions nearly all of the time.

One big reason we have not had revolutionary forms of new money in recent times is that the current system more or less works. That was even hinted at in the seminal 2008 paper about Bitcoin by Satoshi Nakamoto, the real or made-up name of the currency's creator or creators. "While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model," the paper says.

Anyone struggling to understand why digital currencies are not widely used ought to look at consumer behavior. Consumers have no problem rapidly adopting new technologies if they find them attractive. But they get a lot out of the current system. With minimal inconvenience, they can make secure noncash payments online and in stores, and they can do so around the world at any time. The existing system also allows people to store their money safely in insured banks, and those banks have the ability to create new money out of thin air when they lend to other consumers.

The virtual currencies are nowhere near achieving those things, and more to the point, they often do not want to. "As a consumer, not only am I using a real currency, I also have access to credit and access to a secure bank," said Ed McLaughlin, chief emerging payments officer at MasterCard.

Over the past 30 years, the banking and payments system has not remained static. Credit and debit cards are now widely used, as are A.T.M.s and Internet banking. And the creativity continues as the widespread adoption of mobile phones has spawned easier ways to pay for things and do basic banking.

Virtual currencies are not close to offering such convenience and security on a broad scale.

Consumers did not seem to be uppermost in the minds of Bitcoin's creators. …

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