The Chinese central bank has forbidden any financial corporations to perform any BitCoin transactions. The value of the digital currency dropped promptly with about 25% this morning. The Chinese central bank mentions that there are too many risks involved and that there is no centralized authority backing up the currency.
To be honest, they might be right. And, to be honest, I do not know. I have been following the developments around BitCoin, and the concept actually makes a lot of sense, but at the same time, to me personally, simply does not feel good. I am perfectly aware of what BitCoin is. In short, BitCoin is a digital currency that is generated by computers solving digital problems. So, a BitCoin is generated by actually performing work. Just like normal money is backed up by the gold reserves, BitCoin – being all digital – is being backed up by the digital work that has been delivered.
This sounds like ‘hot air’ to many, but this actually makes sense. In a digital world, gold has no value. Information has value. It is the only thing of value that actually makes sense. We pay for our internet, for our products and services that we order, but that is because the internet, these services and products all exist in the real world. BitCoin does not. BitCoin is the currency for online, so it is digital. You don’t carry BitCoins with you, you have them in a digital wallet.
Even that is not what makes me feel uneasy. Even though there must or will be a way to hack into these at one point or another – the same problem exists with real money. A wallet gets stolen, a bank gets robbed. Real money might be a lot more insecure than BitCoin actually is.
But, my problem is, BitCoin IS and online currency. If it would stay online, fine. But it actually has a real market value. And this is, I think, where we make the mistake. To be honest, I think that was never the concept of the originator of the concept. But we cannot ask him, since he disappeared.
Once a digital element holds a real-world value, there is a crossing. It is like BitCoin is THE currency of the Internet, and Internet in this sense would be considered a country. But I do understand the Chinese central bank’s opinion: a country backs up its currency one way or another. They can be held responsible. The Internet cannot be held responsible. There is no owner, no government, nobody who takes that responsibility.
Giving a BitCoin an actual value makes it a potentially very instable thing. Because, who actually defines what the value is? There is no stack of gold bars somewhere in a vault that covers the value of the BitCoin. There is no one who actually claims that they exist. It is a virtual thing, it exists in code. It is not a physical thing.
Worse, no one owns it.
More and more online services are starting to accept BitCoins. That makes absolute sense. If it is an online currency, you should be able to buy online services for it. A BitCoin will hold its value online, it will work out.
But are we looking at the BitCoin a bit in the wrong way?
It is a risk to have it working in our concept of money. Maybe a BitCoin should never been seen as a currency for us, people. It sounds very much like science-fiction, but what if it is not. What if BitCoin is the currency digital systems will be using.
For example; you run a web production on a cloud server. Your production is generating more traffic, and needs to expand. Your server could negotiate with the cloud system itself more bandwidth, space, speed, and the providing service can demand an amount of BitCoins for it. The provider requires 10 BitCoins for example, which the server might be able to generate, or negotiate.
This is a very basic description, but it makes sense.
As I have written before about the value of digital information; it does not always make sense. Why is Facebook worth so much? Because of their 700m+ users? Who says my personal information is worth something? Because that is the only thing that they actually own. If only 50m information records are actually valuable, would not the price of Facebook plummet?
But anything run by humans need to have a value. In the end, we all need to earn our living and bring food to the table. We need money. WE do not need BitCoins to survive. But the digital world does. At least, it makes sense.
Another example, if we would discard the existence of the IPv6 for a bit, and think about a world where computer addresses are only available in the limited-supply IPv4 that we already run out of. There is a limited supply, so values would go up. Was having an IP address maybe only worth $1, if there is a shortage, that price will rise.
Now, there are so much free services online, which also do not make sense. Nothing is free. Your free Google is not free at all. You can ask Google that yourself. They pay a good amount of money to keep it running… Facebook is not free at all either. Look what only their server costs are. But these companies make their money back in other ways, like selling advertisement spaces or selling your personal information. There is no free.
So, back to the IPv4 story. You have a website, and you want an IP for it. Well, your site has to negotiate for it. Increasing shortage? Your IP will become more expensive. But it is digital currency, it will not cost you as the proprietor anything. But the systems will negotiate automatically. The IP provider will check what the value of the site is, and based on that sets up a pricing.
This is not a pricing in the way that we humans price something. Because, again, we see things in a value of money. We need money. The web needs information. So, it makes sense. Since 1 BitCoin represents an amount of information generated, the system producing the BitCoin has added value to the Internet. So, in this scenario, the IP providing service will mention that owning the IP address will require you to bring information to the table. The BitCoin takes care of it.
Actually, we are already doing this in some way. SEO is a method of doing this. Modern SEO methodology sets up the rules of how successful, important, and popular your site must be to rank higher. It is not only the keywords and descriptions anymore. You can set up the perfect SEO settings on your website, and still show up in the last page on a search engine. Your site is ranked by its value online… it is more or less the same concept.
So, in other words, maybe the danger in BitCoin, as the Chinese central bank sees it, is in the trading a BitCoin for money. Not as using it as what it is intended for.
One thing is for sure. It absolutely sets up some new insights of where the digital world is going ot.