The Secret to Understanding Cryptocurrencies Like Bitcoin

In a recent Los Angeles Times interview, Brookings Senior Fellow John Villasenor sat down with Patt Morrison of the LA Times to discuss cryptocurrencies like Bitcoin.  The concept of cryptocurrencies is a bit difficult to grasp.  Villasenor helps to demystify the concept and explained some of the advantages of Bitcoin and its competitors.

From the interview:

What is so hard for most people to grasp about it?

The hardest thing — not unreasonably — is that bitcoin is completely decentralized currency. There’s nobody in charge, no company, no government, no consortium — collectively everybody acts to run it. Most of us grew up in a world where government has oversight over currency like the dollar.

Is there an actual bitcoin coin?

Strictly speaking, no. People have made little things with a capital B on them. But you can send a half-bitcoin, or .003 bitcoin. I can’t send you less than a cent, but I can send you the equivalent of less than a cent in bitcoin.

I’ve read concerns about its potential for destabilizing “fiat” currencies like the dollar, not just complementing them.

Eight billion dollars [the current estimated value of all the bitcoin in existence] in the context of the global financial system is the tiniest drop in the bucket. I don’t see bitcoin shaking the fundamental foundations of the global system.

That’s not meant to be a criticism of bitcoin. If I’m going to the grocery store, I can pay cash, I can use a debit or credit card — there’s not really a pain point that bitcoin will help to resolve. Now, if I’m going to move $2,000 to London, there is actually a pain point where I might look at bitcoin.