A much more general use of the word currency is anything that is used in any circumstances, as a medium of exchange. In this use, “currency” is a synonym for the concept of money.
This comes from Wikipedia’s definition of a currency and it fits to Bitcoin, which is where this post could end. But that would be a boring post and not help you much, so lets go a bit deeper. For a history lesson search for Crypto-Currency – Bitcoin and its mysterious inventor, a great article.
When Nic Brisbourne wrote about it in March, the total circulation of Bitcoin was $400m and as I write this it is well over a billion USD! More and more people want in and understand the nature of the system or at least trust it more. They are trusting into a currency, a means to exchange value, that is not connected to any state, that nobody controls, that is based on cryptography and code alone.
But VCs are starting to notice as visible in investments in Coinbase, Adam Drapers Bitcoin focus, as well as his father Tim Draper talking about it in a recent appearance on Stanford’s Entrepreneurial Thoughtleader Series.
Some argue that the Cyprus problem builds distrust in state controlled currencies and that is one of the reasons the current interest in Bitcoin is so high. It is inherently uncontrollable unless it is forbidden but you can’t just forbid a billion USD. But if you look at the Coinbase security procedure, it is that they only have a small % of bitcoins on their servers. The rest is backed up on thumb drives. What? Backed up currency? Yep, same as real bills, Bitcoins can actually be printed out on a slip of paper and put in a ring binder. You can even look into other people’s wallets if you know their wallet id. Here is one of mine for example, actually currently hosted on one of the many Bitcoin sites out there. This again means that you will want to have several wallets to not tell everyone who you exchange bitcoins with how much money you have.
But it brings us to an interesting piece with bitcoins. It is both very anonymous in that you can create a wallet and put bitcoins in there. If they come from another anonymous source, e.g. Cash or another anonymous Bitcoin address, then nobody knows whom that money belongs to, but they do know how much money is in the wallet if they know the wallet id. The big exchanges require you to authenticate yourself if you really want to deal in more than a few USD and they need to do that to loose the image of facilitating money laundry. This will be needed to build serious trust and build a stable currency that the nation stations cannot move against.
But can the current run up in value continue? My last transaction from some 14 days ago has gone up in value almost 100%. But even the geek in me couldn’t yet trust serious money towards Bitcoin. On the other side, what good is a worldwide currency that only holds $1b in value? In 2010 there were over 800 billion EUR bills and coins in circulation. Based on this PDF by the ECB I presume 2015 we will hit 1 trillion EURs in circulation. Based on the Statistical Data Warehouse of the ECB, 2010 saw roughly 4.5 trillion EURs in salaries. And Bitcoin is global, making 1 billion USD not enough value for global transactions, actually approaching 2 billion as we speak.
This will seriously be something to watch. Looking forward to your thoughts.