If Bitcoin is to succeed--if using the virtual currency is to be as hassle-free as handing over a portrait of a dead president in exchange for goods and services--it will require one thing: A consensual hallucination.
We must all, in concert, forget the mystery around Bitcoin creator Satoshi Nakamoto, overlook the collapse of the Mt. Gox Bitcoin exchange, forget the speculative rise and fall in price, the early associations with the illicit Silk Road trading site, and the giddy declarations from old school cypherpunks. We must ignore the whole mining construct, and even set aside the fact that the IRS now classifies Bitcoin as property, not currency. And that's hard--really hard. We must then collectively find a reason to use Bitcoin, even though our current hodgepodge of debit, credit, cash, check, money order, PayPal, and other payment methods work well enough for most of us.
Is it reasonable then to expect Bitcoin to ever go mainstream? Talk to experts involved in Bitcoin policy-making, banking, and the Federal Reserve, and the answers turns out to be yes--provided, of course, that the government gets involved. Or, in some instances, gets out of the way.
Why Bitcoin is intriguing
First, though, it's helpful to review exactly what Bitcoin is. Bitcoin is both a digital currency and a peer-to-peer digital payments system; it's the first system to effectively guarantee trust over the Internet. That is, Bitcoin payments can be sent from one party to another across the web without the need for a central bank, central server, or trusted intermediary.
How? Bitcoin's clever use of math and global computer capacity ensures that any transaction is successful, verifiable, and irrevocable. That's unprecedented in the world of virtual currency. Previous efforts, such as CyberCash, for example, required linking a person to a credit card. The pioneering DigiCash, tragically dependent upon 1990s computing power, could only work when a central party, such as a bank, first verified the transaction. Bitcoin requires none of this, and that's what makes it potentially revolutionary.
Bitcoin's originating document, "A Peer-to-Peer Electronic Cash System," constructed this bold new reality through means of a blockchain--the computer file that acts as a public ledger for all Bitcoin transactions. Through a process called mining, the Bitcoin blockchain ensures that every transaction, literally, is publicly recorded and verified. This makes counterfeit transactions, double-spending threats, denials of purchase, and other fakery extremely unlikely. It doesn't prevent the theft of Bitcoins, though, as some users have discovered in recent months.
Bitcoin vs. the world
Given its Earth-shifting potential, why, then, hasn't Bitcoin taken off? There's multiple reasons it remains on the fringe.
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