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Opinion>Technology

Bitcoin’s real story isn’t the rampant speculation, but its untold potential

by Steve Forbes, opinion contributor


The key thing to keep in mind about bitcoin and hundreds of other so-called cryptocurrencies is that they are not yet real money. They are useless for doing transactions. Money that wildly fluctuates will never gain wide acceptance as a means of conducting commerce in the global marketplace.
 
To illustrate this crucial point, can you imagine if you took on, say, a $350,000 mortgage on your house in June 2013 denominated in bitcoins rather than dollars? Today you’d owe the bank about $49 million.
 
Ditto for salaries. Right now you’d be enjoying gargantuan pay raises — except for the fact that your employer would be broke.
 
{mosads}No one in his right mind would sign a long-term lease denominated in bitcoins. However, there’s no reason why private, nongovernment currencies like bitcoin could not replace government currencies. But they will do so only if they are stable in value — in other words, tied to gold or even the Swiss franc. This fixed value, combined with privacy, would make them irresistible to many investors and other individuals.
 
 
Indeed, digital money rose up in response to the poor way that governments have managed their currencies in the last 40 years. Despite its ups and downs, the dollar has steadily lost value since it cut its link to gold in 1971. The abysmal way countries have treated their currencies has literally cost the global economy trillions in lost growth — unstable money hurts productive, long-term investment and encourages nanosecond speculation, especially in currencies, whose daily trading volume exceeds $5 trillion.

But unless the bitcoins and other cryptocurrencies of the world achieve the trustworthy, rocklike stability that the U.S. dollar or the British pound once did under a gold standard, they will remain purely speculative vehicles. 

The really exciting aspect about cryptocurrencies is their technology for verifying and recording transactions. The development of this so-called blockchain technology will soon enough obliterate the way that payments are processed today by banks and credit card companies. It will do to these businesses what the internet did to traditional print magazines and newspapers. 

You are talking here about the “creative destruction” of hundreds of billions of dollars of corporate assets, not to mention wiping out perhaps trillions of dollars in equity values. By contrast, the savings and unimaginable conveniences for consumers and nonbank companies will be immense, a huge stimulus to economic growth. This is the real bitcoin story, not the idiotic speculation dominating the news today.

Steve Forbes is chairman and editor in chief of Forbes Media.