The last few months in particular have seen a flurry of articles on Bitcoin by a number of highly respected technologists, economists and journalists. Some, like my friend and former IBM colleague John Patrick, feel that “Bitcoin has all the trappings of the early days of the web.” Others are pretty negative. So, I decided that it’s time for me to look deeper into Bitcoin, read a number of these recent articles, see if a consensus about its future is beginning to emerge, and try to form my own opinion. Based on the articles I read, no consensus is at hand, their titles ranging from Why Bitcoin Matters to Why I Want Bitcoin to Die in a Fire. I did find the articles quite instructive in helping to shape my own opinion, which I summarize at the end of this blog. Let me explain how I got there. Why Bitcoin Matters is one of the most prominent recent articles, published in the NY times by technologist, entrepreneur and investor Marc Andreessen. Andreessen compares Bitcoin in 2014 to personal computers in 1975 and the Internet in 1993. His VC firm, Andreessen Horowitz has invested close to $50 million in Bitcoin-related start-ups, and continues to actively search for additional such investment opportunities. In his column, Andreessen points out that there is an enormous gulf between what the press, economists and others believe Bitcoin is, and what a number of technologists and entrepreneurs like him are so excited about: “First, Bitcoin at its most fundamental level is a breakthrough in computer science – one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world. . . Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property [e.g., money, signatures, contracts, stocks and bonds,] to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” He particularly values Bitcoin as a new kind of peer-to-peer payment system, “a way to exchange money or assets between parties with no pre-existing trust. . . the first Internet-wide payment system where transactions either happen with no fees or very low fees down to fractions of pennies. Existing payment systems charge fees of about 2 to 3 percent – and that’s in the developed world. In lots of other places, there either are no modern payment systems or the rates are significantly higher.” As a digital currency, Bitcoin has been quite volatile, with large fluctuations in value over days, weeks and months. Most recently, the exchange rate of a bitcoin has been fluctuating between $600 and $900. Its volatility is largely due to speculation and relatively low payment volumes. Despite its positive qualities as a highly secure digital payment system, many believe that the currency’s volatility will likely drive away the vast majority of individuals and merchants. Andreessen disagrees:“The criticism that merchants will not accept Bitcoin because of its volatility is also incorrect. Bitcoin can be used entirely as a payment system; merchants do not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at any time. Any consumer or merchant can trade in and out of Bitcoin and other currencies any time they want.”

via Irving Wladawsky-Berger: Reflections on Bitcoin.