Bitcoin: A Currency without a Country

Posted on: 03 February 2015

For most people, the idea that notes and coins are issued by countries or groups of countries is simply a matter of fact. They expect that when they handle these things or transfer money electronically, that some governmental organisation regulates the process. However, the recent rise of the Internet-driven Bitcoin currency has caused people to rethink this.

Professor in Computer Science, Donal O’Mahony, of Trinity’s School of Computer Science & Statistics, believes that the Bitcoin phenomenon, though still in its infancy, has let the genie out of the bottle.

He said: “Students learn how society moved from barter – trading my goat for your sack of corn – to using more abstract stores of value like salt, gold coins and, most recently, pieces of paper with a government design printed on it. We have gotten used to the idea where something is worth money simply because the issuer – usually a government or a central bank – says it is.”

“But with Government involvement comes regulation. Governments like to track major flows of value so that that they can levy taxes on transactions and wealth as well as uncover and disrupt activities that are deemed anti-social, such as gambling, prostitution, and drug trafficking. If you can ‘follow the money’, then you can usually get to the people involved in such activity. People who want privacy migrate to using cash, but this can be inconvenient in many ways – particularly in a world in which many transactions take place at a rapid pace and on a global scale at the mere click of a mouse button.”

“Bitcoin basically acts like cash, for the Internet. Just as an ounce of gold or a gram of salt has value across all countries, so too does the electronic Bitcoin. The ‘coins’ are created using computer algorithms that are complex – it takes an ever-increasing amount of computer power to create each new one, and there is an overall cap set that no more than 21 million coins can ever be created.”

“The present version of Bitcoin shows that this idea works and, in my view, has let the genie out of the bottle. People, the world over, are intrigued by the possibility of an international flavour of ‘cash’. Regulators will play cat and mouse with this as value is exchanged between ‘real’ and ‘virtual’ currencies, but they will not be able to stamp them out. Legal and taxation systems around the world are struggling to decide whether Bitcoins represent currency or assets, and I think they will be on the back foot for the foreseeable future on this.”

“The search for the perfect electronic currency will go on, and students and researchers like those working here at Trinity College will continue to tinker with possibilities to provide the perfect union of all desirable properties for an Internet payment system. The time between someone having a good idea and it getting deployed everywhere around the Internet is getting shorter and shorter though. Who knows – within a matter of six, 12 or 18 months, we could all be paying for our groceries with this new thing on our mobile phones.”

About Professor O’Mahony

• Professor O’Mahony is no stranger to electronic currency having co-authored Electronic Payment Systems for E-Commerce back in the year 2000 when interest in payment systems for the emerging Internet was at its height.
• Professor O’Mahony and his students developed many different payment systems at the time, one of which was very similar to Bitcoin.
• This, combined with his research involvement with Japan over the years, means some people suspect him of being the secretive ‘Satoshi Nakamoto’ – the pseudonym used by the still unknown creator of the Bitcoin currency.