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For such a recent phenomenon, bitcoin has displayed some decidedly pre-modern characteristics of late. The lack of a central bank renders it prone to the kinds of manias we might more readily associate with earlier forms of capitalism. The recent collapse in value of bitcoin, attended by the halting of withdrawals and subsequent collapse of one of its largest exchanges (MtGox), is perhaps more similar to the 1907 Knickerbocker Crisis in the US, after which the US set upon the creation of its central bank, the Federal Reserve, than anything since.

BitcoinFor such a recent phenomenon, bitcoin has displayed some decidedly pre-modern characteristics of late.

Bitcoin’s price fluctuations are reminiscent of under-developed markets which need more liquidity.

The lack of a central bank renders it prone to the kinds of manias we might more readily associate with earlier forms of capitalism. The recent collapse in value of bitcoin, attended by the halting of withdrawals and subsequent collapse of one of its largest exchanges (MtGox), is perhaps more similar to the 1907 Knickerbocker Crisis in the US, after which the US set upon the creation of its central bank, the Federal Reserve, than anything since.

Yet in a hyper-regulated world, the free-wheeling nature of bitcoin is also its attraction. It is immune from political control: bitcoin cannot be debased by the inflationary impulses of profligate governments. People may also judge it a safer bet than, say, euro savings were for Cypriots last year.

However, bitcoin is the elephant in the living room for the payments industry. It has garnered plenty of comment in the media and has shot up (and down) in value. Yet most established suppliers aren’t making solutions for it, and banks generally want to steer clear of it. Active hostility to bitcoin can be found in unusual quarters. The Russian government declared the trading of the virtual currency illegal. Apple, not generally known for its lack of innovation, has purged its app store of bitcoin wallet applications.

The danger is that bitcoin will show the sheer impossibility of any commerce existing outside the formal, regulated arena, at least for long. The EU is busy updating its payments service directive, essentially to make sure that anything new does not slip between the cracks. In the UK the feeling is that, if innovation is lacking in the payments industry, it can be regulated into being by a newly minted payments commission.

But bitcoin, or indeed any independent currency, deserves a chance to stand or fall on its own merits. Some traders will win and some will lose. In the process bitcoin might develop some genuine and spontaneous innovations that could catch on across the board. Who knows what they might be? Whatever they are, it’s unlikely that the UK Payments Systems Regulator would have thought of them first.

Lawrence Freeborn,
Supplement Editor


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by Darshana Adanwale
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