So the Winklevoss twins are going into space, and paying Virgin Galactic using Bitcoin. Bitcoin seems to be always presented as the currency of the future, a way to dethrone the dollar (even if private money is really a throwback to the past), and space exploration only adds to that sheen. The twins even claimed on their website that their jaunt is a manifestation of the human desire to explore, which is “why we are still here on our planet today, and why we stand a chance of being here tomorrow…or on Mars”. But even if Bitcoin manages to become a commonly accepted currency here on earth, it cannot escape the laws of physics.
Imagine a future where we’ve colonized Mars, perhaps brought over by Virgin Galactic spaceships. Presumably any Martian society would soon find it requires some sort of currency to perform the functions of money: medium of exchange, unit of account, and store of value. (Whether Bitcoin itself performs all three functions at present is an open question, but there is nothing theoretically stopping it from doing so.) If those on Mars wanted for various economic reasons — convenience, avoiding exchange rate risks — to use a currency from Earth (the same way a people in Hawaii use the same currency as people in Maine), they might look at whatever the reserve currency of the world is at the time, whether it’s US dollars or other forms. But the way Bitcoin’s shared public ledger (known as the blockchain) works, all transactions are broadcast between users and are confirmed by the network in the following 10 minutes through a distributed consensus system. (See this guide for an introduction to how Bitcoin works.)
That 10-minute gap is the key to why Bitcoin would not work between Earth and Mars. Mars is on average 140 million miles (225 million km) from Earth, or 12.5 light-minutes. In other words, it would take a signal travelling at the speed of light an average of 12.5 minutes to travel from Mars to Earth. (When the Curiosity rover landed on Mars in 2012, the time delay was 13 minutes; the difference ranges from 4-24 minutes depending on where each planet is in its orbit.) Since a new Bitcoin block is added to the ledger every 10 minutes on average, Bitcoin miners on Mars would be a block behind the miners on Earth most of the time, and would not be able to add their transactions to the block. So Mars bars and restaurants would never accept any transactions in Bitcoin, since they couldn’t be sure that the transactions would become part of the consensus ledger. A distributed ledger-based system thus cannot work across our two planets — and that’s assuming any broadcasts from Mars are at the speed of light, without any delays.
Economic history, of course, shows that people have managed to maintain currencies across vast distances farther than the speed of contemporary communications. The Roman Empire used a common currency throughout the empire, based on a specified amount of metal. The British Empire, by contrast, had a hodgepodge of currencies — the pound sterling in the United Kingdom and the ‘sterling area’ (which included such far-flung locations as Australia and Jamaica), the rupee in British India, and the Straits dollar in the Straits Settlements. But while these systems suffered from the impact of economic laws — debasement by Roman Emperors and colonial administrations alike, counterfeit currencies — there were no physical laws preventing the currencies from working across these distances.
Ultimately, if the good people of Mars wanted to employ a cryptocurrency as their planetary currency, they would have to come up with their own cryptocurrency— call it MarsCoin — and rely on traditional methods of intermediating foreign exchange such as money changers to get Bitcoins, with the attendant extra charges to the money changers for absorbing the currency exchange risk. Or Martians wanting Bitcoins could use MarsCoin to buy a commodity like gold and exchange that for Bitcoins, though the transport costs if you actually shipped the gold would be prohibitive. So there is an upper limit to Bitcoin becoming the frictionless medium of exchange that it strives to be. But that’s physics for you: there is always friction, even in space.
Daryl Sng (@dsng) is a Master in Public Policy student at Princeton University’s Woodrow Wilson School of Public and International Affairs.