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The Next Bitcoin

Digital Currency in the Future


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By Erik Neilson
Wednesday, May 15th, 2013

Bitcoin has gotten quite a bit of attention in the media as of late, with many people taking opposite sides in terms of their views of its viability.

Now, global risk strategist Ian Bremmer is weighing in on the currency and why people might want to hold off before dumping all of their money into a wheelbarrow’s worth of bitcoins.

bitcoin 2The Eurasia Group CEO stated in an interview that he’d be “very surprised if Bitcoin is still around in 10 years,” according to CNNMoney. Bremmer went on to say that “Bitcoin has lost a lot of credibility from the hacking and all this volatility.”

While the currency itself comes along with little risk in the way of being hacked, digital wallets that are used to store Bitcoins have been hacked in the past, and they could easily continue to be if people don’t take steps towards avoiding cyber thieves.

Bitcoins have enjoyed a very interesting run of inflation in recent months. Entering into the year at just $20, the price of Bitcoins eventually soared to $266, the highest exchange rate the currency has seen yet. It then dropped dramatically down to $60 until reaching the ~$120 it hovers around at the moment.

While some are excited by the drastic shifts in the currency's value, others worry that the bubble could burst at any moment. In Bremmer’s eyes, the latter scenario is more likely than the former.

Why Some Love Bitcoin

Not all investors are down for Bitcoin. The currency has been around for a few years, originally trading at just a nickel or so per piece.

It wasn't until early 2013 that Bitcoin really came to prominence, however – imagine how well those who first bought the coins are sitting! Whether or not this lasts, it’s an impressive rate of impression that should never be overlooked.

Determining why Bitcoin saw such a major jump in price isn’t as hard as one might think. A lot of the currency’s success comes down to the financial crisis that occurred in Cyprus in March, in which bank transactions were closed and then limited as the nation looked for a bailout.

This spawned fears that centralized currency could potentially collapse, causing those who air towards the side of caution to find other methods of storing their wealth. With the opening of one of the world’s first Bitcoin ATMs coinciding with the financial crisis, it should come as no surprise why many people see the currency as an integral part of the future.

Bond buying programs have also caused many investors to start thinking about how their wealth may play into any potential deflation scenarios. For example, the yen has seen a large weakening period after the Bank of Japan launched a bond buying program much more extensive than that of the U.S., and this has many wondering whether or not the same issues could occur in this country.

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Will Bitcoin be Replaced?

Bremmer may not see Bitcoin as the be all, end all of future currency, but that’s not to say he doesn’t believe digital currency has its place. The strategist predicts that future digital currencies are likely to be company-backed, which may help prevent the potential creation and inevitable burst of bubbles.

"People can buy things with Amex (AXP) points,” said Bremmer to CNNMoney. “That's a real kind of currency that's created by American Express to allow them to have a greater piece of consumption that they otherwise wouldn't get."

This past Monday, Amazon.com (NASDAQ: AMZN) also launched a currency of its own, calling it Coins. The currency can be used in order to purchase digital products from either the Kindle or Amazon online stores – think games and applications. Facebook (NASDAQ: FB) also offers its own type of currency called Facebook Credits.

And a public-facing company called OpenCoin is looking to take it’s new Ripple platform to the public, which many are calling the second coming of Bitcoin. The difference, however, is that the two platforms work in dramatically different ways, and Bitcoin was created by an anonymous entity; Ripple was not.

Whether or not digital currencies continue to gain steam is anyone’s guess as of right now, but there’s no denying that they have their own time and place, even when compared to traditional currencies.

 

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