A cashless future is indeed on its way, and governments and central banks have no choice but to prepare for it. But a cashless future doesn’t necessarily require government-backed digital currency. And while the technology underlying Bitcoin and other such cryptocurrencies will almost certainly have many useful applications, replacing physical cash is unlikely to be one of them.
Blockchain technology gives Bitcoin two crucial characteristics — it can be exchanged peer-to-peer without the need for a trusted intermediary, and it lets transactions be anonymous. In both these ways, Bitcoin resembles physical cash. But whereas physical cash is the liability of a government, with a central bank controlling its value, Bitcoin is a liability of nobody. This is its fatal flaw as a currency. There’s nothing to stop its value from falling to zero.
Eulogy made by David Shipley