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.
Some work, some don’t. Their success can depend on the ethical values, social cohesion, and common goals of the community.
“Money does not have value in itself. It’s just paper,” says Jem Bender at Britain’s University of Cumbria and an advocate for new types of exchange systems in trade. “We are the wealth – us – our ability and desire to do things for each other.”
In recent years, attempts to develop local currencies have had a mixed record in places from Ithaca, New York to Toronto. One of the more successful ones is in western Massachusetts, where “Berkshares,” or locally printed bills named after the Berkshire Hills, have been in use since 2006. The well-designed currency helps support local merchants, keeps out “big box” store chains, and strengthens community ties.