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Following the publication of a white paper by Satoshi Nakamoto in 2008, bitcoin was quietly introduced to the world in 2009 as not much more than an obscure piece of code. For more than a year after its introduction, each bitcoin in circulation traded for pennies as a community of coders made minor modifications and refinements to the open-source client at the system's core. Its value climbed to roughly $1.00 by February 2011 and then to nearly $30 four months later before settling down to an average of just $8.16 from July 2011 to February 2012. After that, demand began to increase. First gradually. Then suddenly.
In mid-2015, one bitcoin exchanged for roughly $290. It is accepted by a wide variety of businesses around the world, from major online retailers to food trucks. An entire cottage industry has emerged to help individuals buy, sell, store, transfer, and track the price of bitcoin. It is routinely the subject of major media coverage. And everyone with even a passing interest in bitcoin seems to have one question in mind: Will it survive?
Opinions regarding the future of bitcoin are mixed. Jennifer $hasky Calvery, the director of the Financial Crimes Enforcement Network, suggests bitcoin could become "a significant player in the financial system" (2013). Others express optimism regarding the underlying blockchain technology but reserve judgment on bitcoin in particular. Nassim Taleb, for example, believes "[b]itcoin is the beginning of something great: a currency without a government, something necessary and imperative." However, he remains unsure "whether [bitcoin] is the best potential setup" and recognizes that it takes "a long time to establish confidence" in a new payment system (2013). Still others see little hope for bitcoin. Although Paul Krugman acknowledges that bitcoin solves "an interesting information problem," he doubts "whether solving that problem has any economic value" (2014).
In this essay, I consider the factors affecting the likelihood that bitcoin will continue to facilitate exchange in the future. First, I discuss the obstacles to bitcoin from incumbent monies and alt-coins. Then I offer my view on the future of bitcoin and digital payments.
Bitcoin and the Incumbent-Monies Problem
The biggest obstacle to the widespread adoption of bitcoin is the incumbent-monies problem. Virtually everyone in the world is already using...