You’ve probably read that the New Year brought glad tidings for Bitcoin. On January 2, the cryptocurrency hit a three-year high, with its value reaching as much as $1,033. But it doesn’t matter. In fact, it only serves to highlight some of the shortcomings of the currency.
Blockchain advocates may breathlessly point out that the increase in value means that the collective worth of the currency totals as much as $16 billion. That sounds like a lot. It’s not. As the Financial Times points out (paywall):
For context, the Central Intelligence Agency put the planet’s stock of broad money—notes, coins, and various forms of bank account—at $82tn as of the end of 2014. On the CIA figures, the value of bitcoins hashed into existence is similar to the broad money total for Uzbekistani soms. With apologies to Tashkent, the value of soms and bitcoins, and the number of people for whom they are relevant pieces of information in the world of modern finance, both round to zero.
In other words, even valued at over $1,000, Bitcoin isn’t making too much of an impression in the grand scheme of things. In fact, its rising price even hints at some of its troubles.
The Register notes that the recent rise of Bitcoin may be attributed to the steady devaluation of the Chinese yuan. As the New York Times reported last year, a small band of Chinese companies have effectively gained majority control of the currency, and most Bitcoin trading occurs in the country. As domestic currency value has fallen, so demand for the digital currency has risen, driving up its value.
But such centralization is unwelcome for users of the currency outside of China. The structure of Bitcoin means that if a small number of users hold the majority of the currency, as is the case with these Chinese companies, then they are able to veto changes to the underlying technology.
And change is what it probably needs. If the currency is to grow—which, as the Financial Times argues, it clearly needs to—it will need a technical redesign. Currently, Bitcoin can only tolerate up to 27 transactions per second, which is tiny compared to the many thousands that, say, Visa can handle.
Majority control could compromise the development of the currency, then. And given the country in which the most prolific miners and traders operate in, it could also raise fears about state control. None of which is helped particularly by the passing of an arbitrary $1,000 threshold.