NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, December 2, 2013

ALL currencies involve some measure of consensual hallucination, but Bitcoin, a virtual monetary system, involves more than most. It is a peer-to-peer currency with no central bank, based on digital tokens with no intrinsic value. Rather than relying on confidence in a central authority, it depends instead on a distributed system of trust, based on a transaction ledger which is cryptographically verified and jointly maintained by the currency’s users.

Transactions can occur directly between the system’s participants at almost zero cost, without the need for a trusted third party or any other intermediary, and are irreversible once committed to a permanent and fully public record. Bitcoin’s mathematically elegant design ensures that the money supply can increase only at a fixed rate that slows over time and then stops altogether. Anonymity, while not assured, is possible with the right precautions and tools. No wonder Bitcoin is so appealing to geeks, libertarians, drug dealers, speculators and gold bugs.