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Technology & Innovation

Will Virtual Money Replace Cash?

Probably not. But the virtual currency bitcoin could be a real alternative to government-issued money—only if it survives hoarding by speculators, says James Surowiecki.

What’s the Latest Development?

Speculation over the virtual currency bitcoin may have ended the virtual money’s run before it realized its full potential. When bitcoin was quietly introduced in January 2009, the intent was to connect buyers with sellers without going through an intermediary such as banks. But gradually, exposure to the press made its value explode and people began speculating on the future value of the currency. Owners began hoarding the virtual money expecting to sell it later for profit, but if a currency is to function, people must spend it, not stash it away.

What’s the Big Idea?

Is it possible that bitcoin might one day replace the paper currency issued by governments? More likely, it would serve as an alternative currency for buyers and sellers in niche markets where anonymity is valuable and trusted third parties are hard to find. “Before they become such an alternative, though, the system will have to overcome a major, and surprising, problem: people have come to see it primarily as a way to make money. In other words, instead of being used as a currency, bitcoins are today mostly seen as (and traded as) an investment.”


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