What's bitcoin's future?

A lot of booms and busts until it dies for good.

In the course of a little under seven hours, the price of Bitcoin in US dollars fell by over sixty per cent on Wednesday, to $106 a coin. Since then, it's fallen further, and is currently trading at $85 $80 $78 $80 a coin on a downward trend.

If the price doesn't recover, it seems like the beginning of the end for the speculator's bubble. The nature of such a bubble is that it can't hold steady for particularly long, since speculators must sell to realise their gains. Selling depresses the price, which sparks more selling, and so on.

But as bitcoins trend back to a low price, conversation is turning to their future. If the era of the bitcoin millionaires is over, does that mean that the era of bitcion being actually useful is upon us?

That's what I suggest in my piece in this week's magazine (a 180-page centenary spectacular, available in all good newsagents (the magazine, not the piece)), but there's more difficulties standing between there and here. The big one is that, even if bitcoin plunges further and the speculators market is destroyed, the deflationary problem will never go away.

The very nature of bitcoin is designed to encourage hoarding. That's what deflation means: if you hold currency, that currency will be more valuable next year than this year. For the last month, its not just been in deflation but hyperdeflation, a symptom of its meteoric rise.

But suppose bitcoin falls back to $10 a coin, and the absence of speculators returns a degree of stability to the market. A few online traders might decide that it makes sense to offer the currency as an alternative to Paypal, and find that, freed from the hyped-up claims that it is the future of all currency, it actually works quite well for cheap and easy transfers of money online.

But.

The minute bitcoin starts to be useful, the deflation problem rears its head again. If a sizeable number of online retailers are taking bitcoin, then it makes sense to buy a lot now and hoard them until you need them, because both the deflationary underpinnings and the expectation of an increase in the USD/BTC exchange rate mean that they'll be worth more in the future.

But once you start hoarding them, the supply goes down, and other people who need them for transactions have to pay more for them. That increases the exchange rate; and so there's more incentive to hoard; and so the exchange rate rises further – and suddenly it's back in another bubble, which eventually pops, and people again lose money.

This volatility, in other words, is inherent to the platform. That's a major barrier to widespread uptake, and a reason why I'm bearish on the future of bitcoin full stop. Once it's dead, I fear it's dead for good.

BOOM and bust.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Benn vs McDonnell: how Brexit has exposed the fight over Labour's party machine

In the wake of Brexit, should Labour MPs listen more closely to voters, or their own party members?

Two Labour MPs on primetime TV. Two prominent politicians ruling themselves out of a Labour leadership contest. But that was as far as the similarity went.

Hilary Benn was speaking hours after he resigned - or was sacked - from the Shadow Cabinet. He described Jeremy Corbyn as a "good and decent man" but not a leader.

Framing his overnight removal as a matter of conscience, Benn told the BBC's Andrew Marr: "I no longer have confidence in him [Corbyn] and I think the right thing to do would be for him to take that decision."

In Benn's view, diehard leftie pin ups do not go down well in the real world, or on the ballot papers of middle England. 

But while Benn may be drawing on a New Labour truism, this in turn rests on the assumption that voters matter more than the party members when it comes to winning elections.

That assumption was contested moments later by Shadow Chancellor John McDonnell.

Dismissive of the personal appeal of Shadow Cabinet ministers - "we can replace them" - McDonnell's message was that Labour under Corbyn had rejuvenated its electoral machine.

Pointing to success in by-elections and the London mayoral election, McDonnell warned would-be rebels: "Who is sovereign in our party? The people who are soverign are the party members. 

"I'm saying respect the party members. And in that way we can hold together and win the next election."

Indeed, nearly a year on from Corbyn's surprise election to the Labour leadership, it is worth remembering he captured nearly 60% of the 400,000 votes cast. Momentum, the grassroots organisation formed in the wake of his success, now has more than 50 branches around the country.

Come the next election, it will be these grassroots members who will knock on doors, hand out leaflets and perhaps even threaten to deselect MPs.

The question for wavering Labour MPs will be whether what they trust more - their own connection with voters, or this potentially unbiddable party machine.