Could Bitcoin Security Struggles Scare Banks?

Could Bitcoin Security Struggles Scare Banks?

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In an era where digital cash is taking form, we explore how Bitcoin can help complementary currencies to complete the ‘missions impossible’.

Complementary currencies have been playing a vital role in human beings’ currency antiquity since before the Great Depression era. Bitcoin is compared to ‘the next World Wide Web’, according to the operations officer of Paymium, the company credited for launching the first Bitcoin exchange in Bitcoin eco-system. What specifically caused two otherwise irrelevant currencies to cross paths, along with the specifics behind how Bitcoin may help complementary currencies to complete ‘missions impossible’, are answered below in an in-depth analysis of an odd enterprise that may just save the digital cash realm.

New prospects for complementary currencies from Bitcoin

Bitcoin brings alternative (otherwise called ‘complementary’) currency back to the table again. As some of the crypto units of accounts become media’s favorites, such as Bitcoin, questioning whether the rise of multiple currency ecosystems are unlocking both greater economic growth and socioeconomic inclusions for the planet or not become commonplace. The idea of multiple currencies selected, like tools from a tool box relative to the task at hand, makes sense when looking at the digital currency space. There is no reason to see them as a threat to existing fiat currency systems, national or otherwise, as more choice often merits more opportunity.

Furthermore, complementary currencies can adapt the innovative digital features for their own use. The Bitcoin protocol specifies how to build and maintain a distributed database of transactions on the internet. It’s only a matter of ‘when’ governmental agencies will step in to mandate protocols, block chains and acceptable transactions, not ‘why’.

Bitcoin, turning the heads of banks and even IBM, is slowly carving its initials in the world of finance, although many bugs still exist at the blockchain discovery level. In particular, Bitcoin can greatly enhance the efficacy of money transfer where it is lacking, such as the existing alternative/complementary currency communities.

How Bitcoin-like technology and complementary currencies unite

Currently, most of the circulating complementary currency and Bitcoin 2.0 systems are constrained in one region or within one community; the introduction of Bitcoin-like technology can help these currencies to overcome this hurdle and transact with each other freely. Colored coin is a good example to illustrate how this could be achieved. ColoredCoins is an open standard protocol, operating on top of the Bitcoin protocol, that allows coloring of the coins so that people can hold different and numerous assets on the Bitcoin blockchain. Bitcoin is an amazing protocol, but the only asset you can hold on Bitcoin is the BTC.

With ColoredCoins, foreign exchange or precious metals investors may bear viable assets like USD, GBP and Gold while housing different securities on cloud-based servers which are decentralized yet secure. To illustrate, if peer C holds Chiemgauer (a German regional complementary currency) and peer W holds WIR (a Swiss regional complementary currency), they can exchange those assets by communicating only with each other in a secure, direct and transparent way without any third parties involved.

Can cryptography and the decentralized computer network compare to traditional complementary money?

Currency exchanges are published then signed digitally using a cryptographically generated key pairing structure. Signatures by private keys ensure the title of property to any given amount of Bitcoin: knowledge of the private key associated to the receiving address is required to send a part or the whole of any transaction output. The Bitcoin transaction database holds all the necessary information for an address owner to receive and spend any amount of Bitcoin: the database and the communication protocol together bring to life a new electronic currency.

Technically speaking, the Bitcoin protocol is actually safe when viewing the system holistically as opposed to the flaws found in smaller sections. If we’re comparing apples to oranges, more risks occur when making use of online wallets or exchanges as those systems have been attacked effectively, and frequently, so we really cannot blame the entire process.

Distributed systems such as the backbone infrastructure of the Internet itself have shown far stronger than the more vulnerable centralized architectures. Disparate people collaborating in a distributed network have managed to survive many attacks.

Types of complementary currencies on the market

The idea of money is believed to have risen from the ritual of giving presents, which is a feature of many primitive societies. From purely giving, more elaborate system of gift-exchange arose. Cowry shells are among the earlier man’s most treasured possessions. From 1200-800 BC, Cowry money has been circulated in China and in India. Cowry has been found in association with coins from sites dating from the first Century AD.

The global history of money is filled with local color. The ‘Miracle of Wörgl’ is a good example from great depression. It was started on July 31, 1932, with the issuing of “Certified Compensation Bills”, a form of currency commonly known as Stamp Scrip, or Freigeld. An experiment that transpired nearly 90 years ago results in a staggering growth in employment and meant that local government projects such as new houses, a reservoir, a ski jump and a bridge could all be completed, seemingly defying the Great Depression being felt by the rest of the world. Inflation and deflation are also reputed to have been non-existent for the duration of the experiment.

81 years later, in Prien am Chiemsee, Bavaria, Germany, Chiemgauer is introduced by Christian Gelleri as a regional currency. According to Christian, Chiemgauer is intended for employment creation, promotion of culture, promotion of sustainability, strengthening the solidarity, stimulation of local economy and express money. There are also some local currencies in UK, Luxembourg and Argentina, such as Lewes, Totnes, Proyecto Mutuo and Brixton pounds, but to date none has taken off. Why the Chiemgauer is so successful, it has to be with the number of shops and materials involved in the Chiemgauer system.

More importantly, the real differentiating point for Chiemgauer is a special feature of it. It automatically loses value if you don’t spend it. Unlike traditional money that can be saved, the Chiemgauer is only valid for three months – the idea being that it must be spent, thereby boosting the local economy. If the notes aren’t spent, they can be renewed by buying a stamp that costs 2% of the note’s face value – so over a year, the currency depreciates 8%. Notes can be renewed up to seven times.

Another example of successfully managed regional-focused complementary currency is WIR in Switzerland. WIR (GER Wirtschaftsring-Genossenschaft), is an independent complementary currency system in Switzerland that serves businesses in hospitality, construction, manufacturing, retail and professional services, now is being called WIR Bank. WIR issues and manages a private currency, called the WIR Franc, which is used, in combination with Swiss Franc to generate dual-currency transactions. The WIR Franc is an electronic currency reflected in clients’ trade accounts and there is no paper money. The use of this currency results in increased sales, cash flow and profits for a qualified participant.

With an increased volatility that many banks are prepared to deal with, it’s hard to portend how long complementary currencies will last into the twenty first century, or if some other self-professed currency based loosely off prehistoric financial instruments doesn’t come along first.

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