The e-currency bitcoin spiked and then fell last week, sowing doubts about alternative currencies, whether on the Internet or in local communities. Such experiments need a firm basis of trust.
A big financial story last week was the sudden rise and fall of a new “digital currency” called bitcoin. Designed by computer experts as a form of secure electronic cash backed only by its community of users, bitcoin’s value went from less than $100 to $266 and then back again.
Bitcoin’s bubble-and-burst was not a sign of faith in the future of “cryptocurrencies,” or money systems that assume encrypting software can outsmart a cheating human in e-commerce.
Still, bitcoin, which is the world’s first online decentralized currency, has already spawned better versions of itself (“litecoin” and “PPCoin”). As with other “unofficial” methods of payment, they represent a desire for alternative monetary systems that can be trusted – as well as build trust.
Faith in the global financial system has remained weak since the 2008-09 crisis, especially as central banks from Tokyo to Washington print more money to pump up their economies. Rather than rely on the dollar, the yen, or the euro, many communities – either “virtual” ones on the Internet or real ones on Main Street – are trying alternative currencies.