Currencies of the future

We talked recently about the link between gold prices and Apple stocks, and speculated that other stores of value could eventually replace gold. Alternative currencies have seen a lot of movement recently.

[Bitcoin] doesn’t rely upon a central authority. It is stored virtually in the form of a file and digitally transferred. Once the money supply has reached 21m bitcoins – growing as the network grows – no more will be issued, thus prohibiting devaluation. Bitcoins can’t be frozen, tracked or taxed.

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Bitcoin is popular with dealers in illicit goods for exactly these reasons. One of the most well known uses of the alternative currency is on the online marketplace Silkroad, where almost anything can be purchased. Drugs are most popular, and through use of the TOR services transactions are anonymised.

Alternative currencies allow their users to circumvent government control of money in just the same way that 3D printing may mean users can avoid controls on restricted manufactured goods. However, as Bitcoin is a small currency, it is highly volatile, which means that fluctuations in value like the one above aren't all that remarkable. Alternatives currencies also have a poor survival rate. Currencies like DigiCash lasted only a decade.

So while Bitcoin might not be used to protect against inflation right now, it could start to turn that way. Until then, it may remain the domain of a very niche community.