Like Wile E. Coyote, the persistent pursuer of the fleet-footed cartoon Road Runner, Bitcoin ascended to a new plateau, clearing the $3000 mark for the first time before promptly stepping over the edge and plummeting, losing $300 in an hour. If Bitcoin had been wearing a hat, cartoon physics would have demanded that the hat stay fixed in the air for a few seconds longer before joining the descent.
And then, precisely as cartoon physics would further postulate, Bitcoin bounced straight back up again, not quite as high, but perfectly in line with what a set of conveniently placed Acme Corporation power lines would do for any entity careening downwards from a great height.
The bounce highlights a couple of fascinating things about Bitcoin. Firstly, that it attained the lofty height of $3000. Around December, it was floating around $750. Since then, it has continued to break records, making me nostalgic for the time when the world waited to see who would be the first celebrity to reach the unheard-of plateau of 1 million followers on Twitter. (It was Ashton Kutcher in April 2009).
It is likely that anyone reading these words in December 2017 or beyond will look back with amusement at a mere $3000 price point.
Or maybe they won’t. Because there is nothing to guarantee Bitcoin’s ongoing ascent. It could easily continue its fall, losing value quicker than it had gained, and making way instead for the next virtual currency, whether that be LiteCoin or one of the roughly 700 other contenders.
Bitcoin is a mystery to many, a source of fascination for others, and an item of serious interest for companies and banks around the world that are astute enough to take notice. As a "payment vehicle” or currency, it has the potential to hit a critical mass of adopters, turning it from a curiosity to a legitimate stateless currency, especially if the miners and their associations can get that processing and acceptance barrier down from 20 minutes. Who wants to wait 20 minutes to pay for their burger?
The practicalities of virtual currency will work themselves out in time, but the engine behind it is of more interest, since it reveals a couple of amazing things about human nature. First is our ability to innovate in inconceivable ways, and the second is how we bring those innovations back into the realm of human frailty and hubris.
Bitcoin was supposed to be a great leveler – anonymous, decentralized, and answerable to no bank or government – the kind of thing revolutionaries always dream of. However, the intricacy of mining Bitcoin, that is to say, using incredibly complex mathematical riddles to confirm the validity of each transaction, and then creating the money as it is needed, has an Achilles heel. It requires a lot of power. Actual, electric power.
In order to be fraud-proof, and to discourage bad actors from cornering the market, the inventor(s) of Bitcoin set up validation algorithms that were so labor intensive in terms of computing energy, that it would cost too much to run the computers and keep them cool long enough to defraud the system. So, in an ironic twist, this advanced virtual currency is actually powered by electricity, since the only way to mine bitcoin is by filling gigantic buildings with racks full of CPUs, similar to server farms.
Consequently, one could suggest the currency is backed, not by gold or GDP assets, but by humanity’s capacity to provide electricity generated by water or even coal, and then oversee it with skilled employees. Bitcoin may be virtual in that it consists of bits, but it is very real in terms of the energy required to create those bits.
Bitcoin mining, then, can now only be done on an industrial scale. As more people jump into the finite pool of only 21 million bitcoins to ever be produced, the consequent demand drives the value of each bitcoin higher, and the commission for mining them becomes proportionately lower. A country that possesses inexpensive electricity along with an inexpensive labor force may have an edge over choosing which requests get processed first, and this could result in an anything-but-neutral marketplace.
That is the thin end of a wedge that echoes the very same rules of procedure that banks, moneylenders, and governments have always used: "He who has the money makes the rules," or as George Orwell wrote in Animal Farm, "we are all equal, but some are more equal than others."
The volatile nature of Bitcoin and its underlying blockchain engine means that any predictions as to its success or failure are as meandering as the Grand Canyon’s Colorado River. However, human nature is a constant saboteur to perfect social ideas. There are already factions fighting over concepts such as the appropriate size of a block, the ideal speed of processing, and whether some organizations should have their own private blockchains. The newer and even more intriguing technology, Ethereum, led by a 20-year-old Tesla-esque Russian-Canadian mathematical genius, Vitalik Buterin shows even greater promise, yet it, too, has had to contend with a fork in the road concerning diverse groups’ opinions over its development.
A mathematically generated money system like Bitcoin, paired with the immutable ledger system of the blockchain, represents the future of human transaction in the same way hyperlinked information kissed the printed paper world goodbye. But again, human nature seeks to find ways to corrupt the ideal, by capitalizing on it or stealing from it, or in the case of certain post-industrial nations, increasing the level of political and social insularity to actively reject the opportunities that such a market would offer. Thus, to return to the analogy of Wile E. Coyote, human frailty becomes the plummeting anvil that forever keeps the perfect bird out of reach.