After all, it happened to gold and silver. Could the same happen to Bitcoin too?
Gold and Bitcoin share many of the same characteristics. They're both scarce, fungible, divisible, and durable. Gold and silver were once used as currencies but later became superseded in this role by currencies which claimed to either represent or be backed by gold. This had many advantages. These paper currencies were much easier to store and transport in large amounts. Governments liked them because they could manipulate their supply which gave them far greater control over their countries' economies. Banks liked them because they could lend out their deposits indefinitely through fractional reserve banking. Eventually these currencies severed their ties to gold altogether and this is the situation that we have today.
Bitcoin is different in that unlike gold, it's very easy to store and transport in large amounts. However, Bitcoin is also very technical and prone to hacking. And once your bitcoins are gone, they're gone for good. The average person today would probably have great difficulty trying to use Bitcoin in its current form. They would need to implement far better security practices and also familiarize themselves with concepts that would almost certainly seem alien to them.
And that's the unfortunate reality. Despite constant news reports of hacking incidents and data breaches as well as the proliferation of new types of malware such as CryptoLocker, the average person living in 2015 still has very poor security practices. Every few months, I visit my parents who are in their fifties and each time I do so, I usually find that their laptop is full of malware and adware. If one of these programs happened to be a trojan which specifically targeted Bitcoin wallets, then any bitcoins owned by them would most likely be lost forever. This might not be such a huge deal for storing small amounts of BTC but it's definitely not acceptable for storing several hundred thousand dollars worth of it.
As anyone who has ever worked in either IT or computer repairs might understand, my parents are not alone. This is especially true for the older generation and those living in developing countries who might not have grown up with technology and the Internet. Given the choice between holding actual bitcoins and bitcoin IOUs issued by a large, established company, even I would say that they would be better off holding the IOUs.
And that's the problem, really. I suspect that all it takes for bitcoin IOUs to replace bitcoins is a large, established company announcing a service which claims to hold your bitcoins for you. This bitcoin "bank" might offer a great service and snazzy marketing to attract more users and have deep pockets funded by VC investors from Silicon Valley and Wall Street. It might also have the support of governments who would prefer to have their citizens use a currency that complies with existing laws and regulations and is linked to real-world identities. They might offer perks such as insured deposits, interest on their savings, air points/credit card miles, and instant no-confirmation off-chain transactions.
Given the choice between storing $400,000 (the average net worth of a US adult) worth of bitcoins on a desktop computer which could also get stolen, hacked, or experience a hard drive crash at any moment (and that's another point - most people don't make frequent backups of their data), or storing the same amount of money in the form of IOUs issued by a "bank" that employs professional security experts and has a branch in every major town and city in the US, I think I know which one most people will prefer.
What do you think? Do you think the possibility of bitcoin IOUs replacing bitcoins is real or is it not something that we need to worry about? And if it is a problem then what steps can we take to prevent a "fiat 2.0" from happening?
