Our idea of “money” has evolved greatly over the centuries – from trade and bartering of objects, to gold and silver coins, to green paper bills, to plastic cards and now to online transactions.
Although traditional financial institutions remain powerful, cryptocurrency has the potential to transform the global economy.
Bitcoin is the digital transfer of digital money with an international scope.
You can purchase Bitcoins with paper money or earn them by becoming a “miner” and verifying other transactions.
“Whether Bitcoin will eventually reach a status comparable to national currencies, continue to be as a financial market curiosity or fade into obscurity remains to be seen,” said Norman Maynard, an economics professor at College of Charleston.
Despite preliminary challenges, Bitcoin is rapidly gaining popularity due to its value, international availability, decentralized organization, peer-facilitated operation and lack of transaction fees.
Cryptocurrency is valuable
What gives money its value? Simply put, society assigns an agreed-upon value for its legal tender.
Without this agreement, a $100 bill is simply a piece of paper.
Widespread adoption of Bitcoin changes the currency from a collection of ones and zeros into a valid legal tender.
Bitcoin’s value has fluctuated wildly, beginning at $1,000 at the beginning of 2017, spiking at $5,000, and falling to $3,000.
Detractors such as the MIT Technology Review claim that “[Bitcoin’s] rising price even hints at some of its troubles.”
However, an economic principle called the network effect predicts that goods and services become increasingly valuable as they are used more often.
When greater numbers of people and institutions start using Bitcoin, the currency will stabilize.
Bitcoin facillitates international trade
Bitcoins can be instantly exchanged without the hassle of governments, borders or banks.
A complex and interconnected system of international finances could be streamlined into this single currency.
Admittedly, banks provide a valuable service of loaning money to businesses and individuals in need of capital.
However, the global economy is vulnerable to the failure of giant banks who have monopoly power.
Bitcoin could protect the economy from the rise and fall of financial intermediaries, and loans could be given by the private sector.
As commerce becomes increasingly global, a high demand for cost-effective transactions will create a need for Bitcoin.
Decentralization can make transactions safer
Today, currencies are subject in some way to the whims and wishes of their governments.
In the United States, the Federal Reserve can print additional money, which can devalue the dollar and cause inflation.
In contrast, no single government, country, bank, corporation or individual controls Bitcoin.
Government removal of high-value bills in Venezuela and India, along with steady devaluation of Chinese currency, has led many to adopt Bitcoin.
Bitcoin’s anonymity is an attraction for citizens living under a corrupt government who place little trust in their country’s financial institutions.
Although current investment in Bitcoin is similar to the stock market, it could become a more stable currency than government-backed money in the near future.
Open-source software
Bitcoin relies on a network of so-called miners to verify transactions.
Thousands of users provide computational power, incentivized by the opportunity to earn Bitcoins as a reward.
The miners record the transactions in a public, permanent digital ledger called a blockchain.
A randomly-chosen miner adds another block to the chain every 10 minutes and is rewarded with several Bitcoins.
However, the peer-connected system is worryingly slow, with the capacity to handle only seven transactions per second.
Credit card companies can manage thousands of transactions per second, vastly outweighing Bitcoin’s current capabilities.
If Bitcoin is to become a major financial player, the operating system will have to change to process more transactions.
No transaction fees
Credit card companies charge 10 or 20 cent fees to transfer money, an additional cost which negatively impacts both mom-and-pop shops and larger companies.
Bitcoin eliminates transaction fees by promoting the even exchange of money, no matter its size.
Bitcoin also forgoes the expensive fees added onto remittance payments.
Kenyan citizens working abroad sent home $1.2 billion a year in 2013, but banks charge a 9.2 percent fee for each international transfer.
Bitcoin can eliminate or greatly reduce those fees, since its money is easily exchanged with someone halfway across the world or to the person sitting next to you.
“Bitcoin is…a simple, elegant and modern replacement for the entire concept of money,” says financial giant Nasdaq.
by Desiree Belsom
CougarBuzz 