It is hard to see bitcoin’s price surge as anything other than a bubble that will ultimately collapse. Bitcoin’s ostensible social function as an anonymous, nongovernmental means of payment carries big risks of its demise. And while blockchain, the platform that records bitcoin transactions, may well have staying power, there is no reason to believe it needs to rely on bitcoin for its success.
Bitcoin is billed as a virtual currency that is independent of government or any other centralized authority. Its strengths are that it enables anonymous transactions and safety from taxation and confiscation by the state. Blockchain is also supposedly robust to transaction failures that can hit a centralized clearinghouse.
As has been widely reported during the recent surge in bitcoin prices, new bitcoins come into circulation in return for investments of computer time (termed “bitcoin mining”) linked to updating the decentralized blockchain ledgers that update the ownership of bitcoins. The bitcoin basic algorithm is designed to limit the new virtual coins that come into circulation through mining, thereby ensuring the scarcity of bitcoin that ostensibly gives it its value.
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