For something entirely virtual, Bitcoin has caused a very real ruckus. Everyone from central bankers to anarchist cypherpunks has queued up to give their five pence worth on the decentralised online currency, as the US Treasury describes it.

So is Bitcoin the greater leveller that many claim? Or is it, as others argue, an unruly upstart that threatens to send the monetary system into chaos?

Upside

Let’s start with the positive. Bitcoin works as a pretty effective medium of exchange (see this video for the basics). As a digital currency, it effectively bypasses the intermediary role of banks, with their expensive credit cards and high processing costs. That makes online transactions smoother and cheaper, as well as providing more flexibility for financing projects.

The banks have held back innovation in money for so long. So the fact that there are discussions in Silicon Valley about payment systems like Bitcoin has to be a good thing, says David Boyle, an independent specialist in alternative economics and author of Funny Money.

The fact of direct exchange bodes well for internet entrepreneurs and traditional businesses too. Right now, if you design a high-transaction business that requires online payments in tiny amounts – say 1p or less – bank charges make it a non-starter. Bitcoin changes that.

People like Bitcoin for political reasons too. That’s mostly because it sticks two fingers up to governments and the central banks beholden to them. Instead, Bitcoin generates its own money. Google ‘cryptographic hash function’ and you’ll quickly get a feel for the basic nuts and bolts of how the process works. But for most Bitcoin advocates, the specifics are less important than the principle: the decentralisation (and democratisation) of money supply is what wins the digital currency a thumbs-up, not the complex algorithmic computations underpinning it.

Downsides

The downsides, however, are only too apparent. Stories abound about how the high-profile digital currency is the coinage of choice for the ‘darknet ‘, used for everything from arms running to money laundering. The closure last year of Silk Road. an online narcotics marketplace beloved of Bitcoin users, hit the reputation of the digital currency hard.

Being unregulated and exclusively online, the currency is vulnerable to theft too. Gone are the days of muggers knocking you on the head and stealing your purse. Now they just need to hack your Bitcoin account. The MtGox hack is perhaps the best known, partly because it sent the value of the currency plunging but also because the hackers had the cheek to try it again. But there are plenty of other examples too.

Bitcoin suffers two other major downsides, neither of them headline-grabbers but important nonetheless. First, the idea of an alternative currency isn’t that new. Recent decades have seen waves of other examples, says Leander Bindewald, a currency expert at the New Economics Foundation, a London-based think tank. Think Local Exchange Trading Systems in the 1980s, Time Banking in the 90s. and transition currencies such as the Brixton Pound or online community exchange systems more recently.

Nor is Bitcoin actually that unique. Dogecoin, Litecoin, Darkcoin, Namecoin, Peercoin and a myriad of other cryptocurrencies like them are all based on a similar premise and adopt similar technologies. It’s just the narrative around Bitcoin – its mysterious founder, its claims to disruption, its decision to set the total issuance of Bitcoins at a fixed amount, and so on – that cause it to stand out, Bindewald claims.

There’s a lot of discussion now about how Bitcoin is interesting as a payment mechanism and a governance paradigm. But the currency that everyone knows is pretty uninteresting – it’s just a proof of concept that the payment mechanism and governance paradigm actually work, he adds.

Sustainable alternatives

The arguments around Bitcoin will rumble on. But, from a sustainable finance perspective, is it worth the fuss? If you’re looking for an alternative currency system that will drive a transition towards sustainability, then there are plenty of better places to start than Bitcoin. Take e-portemonnee. an e-wallet system currently being piloted in Belgium. The system, which is run by Limburg.net, an inter-municipal waste disposal company, sees local residents gain discounts at municipal facilities in exchange for reducing their waste and other environmental actions.

Or consider an approach being experimented with in the French city of Nantes. Last year, local bank Crdit Municipal de Nantes issued a pilot currency in conjunction with the municipal authority for exclusive use in the area. The digital currency is designed to facilitate business between participating companies as well as trade with any individual who is part of the scheme. SoNantes is regulated by a mutual credit system, with users’ credits and debits tracked online and then settled after a set period.

Other sustainability-focused pilot currencies to look out for include TradeQoin (for trade between SMEs), Amsterdam-based Makkie (for promoting community involvement) and the UK time credit scheme Spice (for encouraging community-led development).

The dominance of physical cash as an instrument of exchange is dwindling fast. Expect more and more alternative currencies to spring up. Bitcoin is enjoying its moment in the limelight – but it’s not necessary the best, and definitely not the most sustainable.

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