Could we possibly see a cascade in the use of Bitcoin currency? If you’ve read some of my other posts, I’ve talked about Bitcoins a few times, as I find the concept of an entirely digital currency intriguing. Surely, if more people opt to use Bitcoins, or a substitute, it would increase its value (as we’ve learned is what happened in chapter 17 on Networks Effects). As it’s value increases, the more willing people will be to choose to invest in and use Bitcoins. However, there are many barriers which make it hard for the general public to use Bitcoin. First and most importantly, the currency is constantly fluctuating in value. Common investors just can’t handle the volatility that Bitcoin’s price experiences in one day, let alone a week. Next, the main use for Bitcoins are in the black market, especially in the trade for drugs on the website Silk Road. Another concern is how hard it is to trade Bitcoins because users try to keep transactions anonymous. Bitcoin is also very susceptible to technological difficulties because they are based on a computer algorithm and transactions are processed online through a third party (who may or may not have a secure and stable server).
Everything I just said non-withstanding, Bitcoins are a very appealing notion for many consumers. Digital currency has the potential to change the money industry in the same way that Napster and Torrents changed the music industry. The currency does not rely on a central bank, is anonymous, and can make online transactions easier to make. I think in the near future we’ll see a massive increase in the usage of digital currency.