The exchange rate for bitcoin is madly swinging from the absurd to the incomprehensible. It’s a classic market bubble that doesn’t do justice to the actual promise of blockchain technology.
I’d bet that few people truly understand the complexities of how to buy and hold bitcoin, let alone how it’s “mined,” so insiders are in the best position to profit (again, just like in bubbles of the past).
Operators like the Winklevoi have hoarded bitcoin, perhaps not as boldly as the Hunt Brothers tried to do with silver in 1980, but no less inspired by insights into the foibles of human nature, not its better angels.
Also, the price bubble violates the basic premise of cryptocrurrency, which is that it has no inherent value beyond the community that recognizes and uses it for transactions. Converting bitcoin to dollars or any other fiat currency pollutes its valuation with all of the externalities (and manipulations) it’s intended to avoid.
Bitcoin isn’t supposed to be just another currency, but rather a new tool for commerce that makes those other currencies obsolete.
Enter the blockchain.
In a sentence, blockchain technology is to commercial transactions what self-driving cars are to driving: both embed necessary data in every instant of experience, and remember them every instant thereafter, thereby enabling transparency into each circumstance and the best/most efficient decisions.
The technical differences are immense, of course, and the promise of blockchain transforming how businesses and governments function and interact is probably bigger than the impact autonomous driving will have on our lives.
The bitcoin bubble is little more than a distraction from this far greater and more serious story.
Prices will crash, probably sooner versus later, and the fanatical may get all frothy about the next cryptocurrency (there are many). Markets, like Chicago’s recently announced bitcoin futures trading, will retain only the most hardened exploiters and their victims. Other old-fashioned ways to exploit new ideas will follow.
And blockchain tech will continue to quietly change how the world works.
[This essay was originally published at Medium]