Whether Bitcoin is going to replace the mainstream currency or not, only time would reveal, but one thing is sure that people see it as an alternative. Now, more than six million users in just two years tell us more than what we think. Ben Bernake, the former chairman of the Federal Reserve says “[Virtual currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system”. Despite its spectacular growth, people still doubt about its potential to become widely accepted currency.
Bitcoin is a cross between a stock and a form of transaction currency or payment. It is a form of currency because, you can use it as a currency in buying products. There are several companies who accept bitcoin. For example, you can buy laptops and computer at Tigerdirect.com. Also, you can buy anything at Overstick.com. The recent news of Rakuten, Japan’s largest online retail firm, announcement of accepting bitcoins across its global marketplaces shows its growing significance. Wiper, the secure messaging application has recently rolled out its support for bitcoins by allowing its users to use this mode of transaction. Now, you can order your Domino Pizza using bitcoins and can also buy music and applications from Apple’s App Store.
Bitcoin users can also send small amounts to people in other countries without constraining by exchange rate or currency conversion fees. This is one of the most important features of bitcoins, as seen by its admirers. It is understood as a stock, because there is fixed number of the bitcoins in the universe. It is based on the simple economics concept of demand and supply. The more people use it, the prices go up. While a lot of people experimented with the digital currency in the age of Internet, but it was Satoshi Nakamoto, who solved the issue of “double spending” in a totally decentralized system of network. Meaning that, there is no middleman between two parties, and yet verified across the network. Also, it is difficult to virtually counterfeit.
Bitcoin was envisioned as a trust-less exchange. It simply means that you don’t have to provide your personal data like credit/debit card number for something you want. It can be anything – chocolate, computer, phone, etc. The only criteria is that the other party should agree with you, e.g., he accepts this transaction mode. Once you made the transaction, it will be irrevocable. That means, you can’t call someone to stop this transaction. If you have any dispute with the other party with whom you have made this transaction agreement, only two of you can resolve this problem.
Criticism of Bitcoins
According to Charlie Stross: “Bitcoin was designed as a weapon to damage the central banks with a Libertarian agenda to destroy the state’s capability to collect income taxes and monitor financial transactions of its citizens”. In bitcoins transaction, the anonymity of parties is a great concern for many. As some critics argue that it can become a great transaction mode of payment for drug traffickers, contract killers, illegal weapons sales, and no doubt this serious allegation has solid grounds. Similarly, the Nobel Prize winner economist Paul Crugman says money must be a medium of exchange and a reasonably stable store of value. He doesn’t see why bitcoin should be a stable source of value. Probably, he sees this problem, because all currencies are pegged against gold, and it is protected by governments, but bitcoins have neither.
Lastly, the future of digital currency bitcoins depends upon the growing number of users and acceptability among users. As some companies are coming up front to accept this transaction mode, the future of bitcoins seems promising.
The Road Ahead
When internet has changed everything from the way we live to the way we socialize, but the way we bank dates back to 15th Century. The current currency system is backed by government and central bank which provides trust in general public to use it for exchange. This techno generation believes in making things simple and when individualism consumerism is on the rise, why can’t be a virtual currency that can be used without any third party (government).
The most notable and publicized aspect of bitcoins is as “a store of value”. Bitcoins are created by mining and one needs to be genius for acquiring – you have to solve complicated mathematical problems before you won it. Even the creators of bitcoins can’t produce as much they want. What is missing is though the enforceable authority as discussed at various points.
At the highest point, the bitcoin was valued around $1000 but it crashed at $400, last year. It is unlikely that national currencies will be replaced by a virtual currency, as long as the government owns the power to tax.
Yet the digital currencies like bitcoin offers a promising option as it has the potential to transform the ‘democratization of finance’ – the financial world today is still a complex world where common people has no say. As the digital technology is progressing, finance may become more dramatic. The Paypal, Rupay and other payment systems have made it possible today to accept electronic money what was not so common a decade ago.
Digital currency is something very different what we have never experienced in finance history, it represents a decentralized currency which is more secure and more functional than anything in the form of money we have. So, yes it has a future but not very soon until and unless the technology goes up and government becomes ready to loose their hands on currency.
|Shreya Chatterjee has a variety of interests ranges from politics, technology, media to LGBT rights. She has done her masters in International Relations and currently, working as a researcher at The Indian Iris.
|Nachiket Nishant loves to write on issues related to politics and international affairs. He has done his masters in international relations. Currently, he is the lead policy researcher at The Indian Iris.|