There has been so much tumult in bitcoin and cryptocurrency over the past few days! Interest and concern extends beyond online communities. Motives vary.
Bitcoin miner GUI running Windows 7
Anonymous and decentralized
There are two conceptual pillars of trust that uphold bitcoin as being superior to fiat currency. (The fiat currency of reference is primarily the US dollar. Why? Because the US dollar is the world’s reserve currency, for now.)
The first is anonymity. US dollars held as cash are bearer instruments. Ownership and use is anonymous, but only until one wants to use them for commercial transactions of significant size as defined by anti-money laundering rules. Bitcoin does have some anonymity shortcomings, as transactions on the blockchain are actually pseudonymous, but there may be tractable remedies. Further details have been widely covered elsewhere.
The second conceptual pillar of bitcoin is decentralization. The US dollar is highly centralized. As ideological (but not market) confidence in the dollar diminishes, the appeal of an apolitical, alternative currency increases, especially one that is a fungible store of value.
All markets are game theoretic. Bitcoin is too. I really wish we could ask Professor John Nash what he thinks of bitcoin! Nash wrote a pleasant, accessible article that described bitcoin-like currency, titled “Ideal Money” a few years ago.
Did Mathematician John Nash Help Invent Bitcoin? http://t.co/AVNLfSW5bZ
— Egan J Chernoff (@MatthewMaddux) June 13, 2015
I mention game theory because monopolists and cartels can assert control over bitcoin production. This is playing out right now.
Centralization of bitcoin
Currently, Bitcoin’s most acute concern is loss of decentralization. This is due to the documented, persistent existence of a 51% majority mining pool controlled by gHash.io. gHash is owned and operated by private entity cex.io. gHash’s market dominant behavior was noted in March 2014, however the situation was transient. That has since changed. (more…)
Ellie Asks Why 