Is society ready for bitcoin?

Are we ready to take the next step in digital currency? That is, to use the digital medium itself as the measure and store of value, as well as the channel for exchange?

AccessTimeIconMay 8, 2013 at 3:49 p.m. UTC
Updated Sep 10, 2021 at 10:43 a.m. UTC

Our society has been using digital money for years. Every time we pay online or with a mobile device, we are using a digital form of payment, though it is -- ultimately -- translated into dollars, euros, pounds or whatever currency we use to fund our bank accounts, PayPal accounts or credit cards.

The question is, Are we ready to take the next step in digital currency? That is, to use the digital medium itself as the measure and store of value, as well as the channel for exchange?

Some would answer with a resounding, "Yes." The early adopters of bitcoin truly believe it is the wave of the future.

But for those who are present-oriented, the fact remains that you are still going to need some regular cash and credit cards to pay your way ... as most businesses are not accepting bitcoin for payment yet. That could change over the next few years, of course, as forms of payment really do evolve over time.

Life before money

Nest with Eggs
Nest with Eggs

In the beginning, there was a world filled with various animate and inanimate objects, and people who found they could possess these things. Sometimes, people noticed they didn’t have in their possession something they wanted. Maybe Joe Stone-Age decided he would like to eat an egg ... but realized he didn’t have any. If he didn’t care about maintaining peace and calm in his society, he could decide simply to take someone else’s egg. However, he could also propose to trade something he had in return for what he wanted.

He could offer, say, a bundle of wheat for Jane Stone-Age’s eggs. If Jane agreed ... great. The trade could take place, and both walked away happy.

The barter system works fine if people are in close proximity and each has exactly what the other wants. But it gets rather more complicated if the price for the eggs is not the wheat that the farmer has in hand but something else ... maybe, for example, some wool. Joe the wheat farmer would then first need to see if Jack the shepherd was willing to trade wool for wheat, so that Joe could then trade with Jane to obtain his eggs.

Bartering quickly grows more complicated when people have to go through even more intervening steps to get what they want. The solution, clearly, rested on finding a universally accepted form of payment with a set value that could be used to buy eggs, wheat, wool or anything else from anyone willing to sell.

From cowries to coins to checks

That’s the simple definition of money: a medium of exchange, a measure of value and a store of value.

While we tend to associate money with gold or silver coins in which the precious metal was the basis of the value, that kind of connection has never been a requirement. Just about anything can be -- and has been -- used as money, including beaver pelts, tobacco leaves and cowry shells. Or, of course, pieces of paper representing different monetary units or pieces of plastic stamped with an account number serving as a link to a line of credit.

The real value for any of these items derives not so much from the items themselves, but from what they represent to others in terms of buying power. It's a matter of trust in the item's value.

For example, the reason a check is accepted as payment is because the recipient trusts that the document represents a valid bank account containing sufficient funds to honor the check.

Bold on gold, fantastic plastic

Gold Bars
Gold Bars

During the late 20th century, money evolved in a number of ways.

In 1971, President Richard Nixon took the US dollar off the gold standard. Prior to that -- under the Bretton Woods system adopted internationally in the waning days of World War II -- the dollar’s value was set at 1/35th of an ounce of gold. After Nixon's move, the dollar’s value was free to fluctuate ... and it did. To this day, its value depends on its perceived worth, which changes over time.

The real revolution in money, though, was not the change in legal tender but in the way in which people spent it. Back in the 1970s and 1980s, American Express still had to urge people, "Don’t leave home without it" in its advertising. Fast-forward to the 1990s, and most people were no longer thinking twice about carrying credit cards. Today, we use them to pay for just about everything, from clothes to cars to candy.

Just before the turn of the 21st century, we saw yet another breakthrough in payment systems: PayPal.

A new pal for commerce

PayPal Buttons
PayPal Buttons

PayPal’s history is a bit circular. It started out as a mobile digital wallet, became popular as a way to handle payments online, and is now returning to the mobile sphere. The idea for PayPal was born in 1998, when Max Levchin and Peter Thiel launched Fieldlink, a security-minded company that developed a way to let users store encrypted information on their Palm Pilots and PDAs. Levchin and Thiel eventually changed the company name to Confinity (a combination of the words “confidence” and “infinity”) with the goal of enabling people to use PDAs for secure money transfers. Thus did an early vision of the digital wallet come into being.

In July of 1999, the new technology was demonstrated when Nokia Ventures and Deutsche Bank used a Palm Pilot to transfer $4.5 million in venture funding to Peter Thiel’s PDA. (Levchin was also on hand but fell asleep at the table after having stayed awake for five straight nights of coding.)

Although the product was originally designed for use on Palm Pilots, it was Pay’s web-based demo that really captured the interest of business. In response to the new-found demand, PayPal shifted gears and began offering a convenient form of payment for online businesses. Among those that began using the service was eBay, which acquired PayPal in 2002 for $1.5 billion.

"eBay buying PayPal was maybe the most successful acquisition in Silicon Valley history," Anuj Nayar, PayPal's senior director of global communications, has noted. "PayPal now accounts for 38 percent of the total company's revenue."

Nayar has also noted the irony of PayPal’s 360-degree turn as it returns to its original plan of developing a digital wallet. The company’s goal is to win a share of the highly competitive mobile payment business.

Smarter phones, smarter payments

Cell Phones
Cell Phones

As people have begun using their phones more for computing and other online tasks, they have also begun relying on them for banking and payments. That’s where digital wallets -- also known as e-wallets, which can manage credit card accounts,  loyalty cards and even digital coupons and special mobile promotions -- offer the ultimate in mobile convenience.

Visa, PayPal and American Express all want a piece of the action. They offer their own versions of digital wallets or latch onto offers from Google, Apple, Samsung and Isis. But all those convenient options come with the cost of transaction fees, which are often borne by the seller who has to make up for it in the price charged to the customer.

That's why some believe that the progress we've made in the form of digital payments should be matched by a digital form of currency. That's the idea behind, among others, bitcoin and ripple, cryptocurrency systems that enable peer-to-peer transfers of payment with no central authority over the currency and processing fees that are much lower than for other money transfer systems.  Both system are based on mathematics, and promise only a limited number of the currency units.

By 2140, for example, the computer program that generates bitcoins will have produced 21 million of them ... no more will be generated after that.

Launched in January 2009, the bitcoin peer-to-peer network involves thousands of independent nodes using powerful computer systems.  The coins are "mined" through  processing highly complex mathematical problems; the first to find the solution earns a new lode of 25 bitcoins. Once these coins enter circulation, they can be used directly for purchase or traded for fiat currency. Like cash, they are not associated with the identity of the buyer, keeping the transaction anonymous without sacrificing the electronic transfer convenience granted by online payment.

One more distinctive difference with digital currencies is that the transaction fees associated with them are much lower than for credit cards, wire transfers or PayPal.

Another digital currency, ripple entered the game later than bitcoins. It began releasing what will ultimately amount to 100 billion ripples (also known as XRP) in 2013.  The system is still in beta.

, an economic consultant for OpenCoin, the company behind ripple, and a professor of international political economy at the University of California, has written three books on the future of money. In his view, "the new math-based currencies do indeed offer effective solutions to the key technological challenges: security, reliability, confidentiality, and portability."

Digital currencies, Cohen says, form a logical progression for money's evolution, just like paper money did in its time.

"Two centuries ago, few were prepared to voluntarily accept paper currency that was not directly convertible into precious metal -- gold or silver," Cohen explains. "Today, who worries about that? In time, the same should happen with electronic money."

That doesn't necessary mean overnight, however. More likely is that society will firmly embrace digital currencies over a generation or two.

Nevertheless, Cohen is certain it will happen. Despite people's reluctance to change what they’re used to -- inertia, he calls it -- they will likely come to accept that digital currency is much better suited to today's global economy.

"Overcoming inertia in monetary matters is difficult," Cohen says. "To persuade people to make use of a particular money, they have to be convinced that others will in turn accept it -- which is not easy when, in effect, everyone is waiting on everyone else. What electronic currencies need to do is convince people that they are actually easier to use than conventional money -- for cross-border transactions, for example. The world economy is becoming more and more globalized. More and more transactions require transferring purchasing power between currencies, which in turn may involve onerous bank transfers or currency conversions. Electronic money cuts through all that and does so in real time. That is the big advantage that could eventually help to overcome inertia."

The bitcoin diet

Pizza (small)
Pizza (small)

While that's an optimistic outlook for the future, the present continues to pose obstacles. Consider, for instance, Forbes reporter Kashmir Hill, who's working on the challenge of living off bitcoins for a week.

She ran into difficulties from her very first day. The bitcoin-accepting bakery in her neighborhood was closed. Starbucks wasn't an option. She had to walk everywhere because she couldn't use bitcoins to pay for bus fare. Eventually she managed to rent a bike for a fraction of a bitcoin, and staves off the worst of her hunger thanks to the fact that food-delivery service Foodler accepts bitcoin.  By day three, though, she was calling her experiment "The Bitcoin Diet"; forced to walk or bike everywhere, and with limited food options, she had lost three pounds.

While Hill's account makes for an entertaining read, it also raises awareness about both the minor inconveniences and serious concerns a person who wants to use digital currency would have to deal with on a daily basis. For example, after the value of bitcoin plummets overnight, Hill finds herself with even fewer resources to support herself for the week. (Between day one and the end of day three, bitcoin's value dropped from $142 to $91.)  There are also worries about emailing bitcoin payments.

"If you put a typo in an email address, you'd be kissing your BTC goodbye, like sending cash to the wrong address," Hill notes ruefully.

But it's not all bad news for bitcoin use, as a growing number of outlets for the digital currency are beginning to bloom. Hill reports on the demo of a bitcoin ATM, which will eventually allow bitcoins to be traded in for cash or vice versa. She uses a different ATM herself, the low-tech, Bitcoin-to-Cash Converter Box, which relies on user honor and honesty rather than advanced encryption.

As Kashmir Hill’s experience illustrates, society today is not quite ready to embrace digital currency to the exclusion of traditional fiat. But it is taking some important steps in that direction.


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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

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