When Bitcoin first entered the public alertness a few years back, a handful of big companies like Dell and Expedia declared that they would start accepting the virtual currency. But there weren’t many takers.
This misstep hasn’t bothered many of the people purchasing up Bitcoins in new months, pushing the price to new highs — above $13,000 for one Bitcoin on Wednesday.
These investors aren’t utilizing their tokens to purchase computers or to book trips. Instead, they are hoarding Bitcoins as if it were virtual gold, a new way to store money outside the control of any government or company.
“I’ve ever been doubtful of directly competing with and replacing existing forms of payment,” said Steve Lee, a longtime Google employee from San Francisco who is investing in virtual currencies. “Today what Bitcoin is great at, and has mostly solved, is being your own bank.”
The debate about what Bitcoin does well and not so well can look like a semantic debate for computer fools, with a small purpose to the outside world.
But arguments within the Bitcoin community are being watched firmly by central bankers and financial industry executives. The titans of finance are auditing Bitcoin’s successes and failures as they analysis with its technological concepts, like the ledger for recording virtual currency transactions, known as the blockchain.
Many big institutions have said they ambition to integrate blockchain technology into their designs for the world’s future financial infrastructure, and those designs are likely to be affected by what is learned from Bitcoin.
“People are seeing at this in component because they see the starting of a new financial system — a financial system that has a very various structure than the one we have right now,” said Neha Narula, the director of the Digital Currency Initiative at the Massachusetts Institute of Technology.
Mr. Lee and others hope Bitcoin can be utilized for payments someday, but he thinks that will most likely appear from software that is built on top of Bitcoin, not the Bitcoin network itself.
Not anyone agrees with Mr. Lee’s position. Many executive and academics think virtual currencies will benefit traction only if they are simple and cheap to send around. The argument has given rise to a host of Bitcoin competitors — including an independent virtual currency known as Bitcoin Cash.
But the society that has developed around the original Bitcoin has progressively been united around a vision that is focused on its gold-like qualities, rather than its capability to compete with PayPal or the Western Union.
“The reason people own Bitcoin is that it’s an extreme store of value, probably the greatest that has ever existed,” said Jimmy Song, a developer who has supplied to the Bitcoin software. “You can send money to Africa in 10 minutes, but that’s not the main reason people purchase it.”
When Bitcoin was introduced in 2008, the title of the paper written by its creator, the mysterious Satoshi Nakamoto, called the currency an “electronic cash system.”
The Bitcoin software designed a decentralized network of computers that everyone with internet access could join, making it simple to send Bitcoins between addresses. And Bitcoin first gained public notice because of its use as unnamed digital cash on black-market websites like the Silk Road.
But the number of people utilizing Bitcoin to purchase things was ever small compared to the number of speculators purchasing it because of its scarcity. This was something the original software behind Bitcoin had also encouraged, by setting a limit of 21 million on the number of Bitcoins that would always be released.
The growing value of Bitcoin made it even less attractive as a way to pay for things. Most people don’t want to pay now with a dollar that could be worth twice as much next week.
There are also limits on the Bitcoin system’s quantity. A rule written into the Bitcoin software had established that the network could progress only around five transactions per second — compared with the 25,000 transactions handled by Visa each second.
This bottleneck led to a fight between people seeing to use Bitcoin for various purposes. Many early followers trusted the system could increase to handle more transactions without sacrificing its status as a virtual product. This camp expected a change to the Bitcoin rules that would have doubled the capacity of the system in November.
But Mr. Lee and other investors and programmers worried that rapidly expanding the Bitcoin network would threaten Bitcoin’s independence.
“To be global money, you can’t have one bank or one country controlling the money, or even a handful of countries or banks,” Mr. Lee said. “If dissolution is jeopardized, most things fall apart with Bitcoin.”
Decentralization is a result of Bitcoin’s extraordinary design, which permits users to keep and monitor the records of every single Bitcoin transaction, without any central authority.
If the number of transactions rapidly increased, many Bitcoin aficionados trusted, only big companies would be able to keep the records. What’s more, they trusted the design of Bitcoin wasn’t well suitable to compete with PayPal and Visa, because every transaction has to be recorded on thousands of computers around the world.
“Everyone who looked at Bitcoin and saw ‘cheap payments’ likely doesn’t have much background in computer science,” said Ben Davenport, a co-founder of the virtual currency start-up BitGo and a rival of doubling the network.
This argument bleated, and in early November the plan to double the network capability was called off.
Since then, people excited in utilizing virtual currencies to make payments have looked to Bitcoin competitors. Stephen Pair, the chief executive of Bitpay, a start-up that assists companies to take virtual currency payments, said his clients were seeing to move beyond Bitcoin.
“If people can’t enlist in commerce, it’s hard to imagine why they’d want to store their money in Bitcoin in the first place,” Mr. Pair said.
Mr. Pair believes it is immoral to advise that a virtual currency that has been around for less than a decade could pose a conclusive challenge to gold. The concept of Bitcoin as a good place to store money, he added, will be less cogent when the price of Bitcoin goes down, as it has in the past.
One different is Bitcoin Cash, which was designed in August. The price of Bitcoin Cash has risen over 125 percent since the plan to double the capability of the original Bitcoin was called off.
But there is no poverty of investors who have voted with their pocketbooks for the more wary way of the original Bitcoin.
The price of a Bitcoin has jumped 70 percent over the past month, to more than 10 times the price of an ounce of gold.
“I don’t think most people feast Bitcoin as something to purchase because it’ll get feature X, Y, and Z in the future,” Mr. Song said. “Mostly, people are investing because they trust it to be a good store of value.”