Bitcoin and the Future Of Traditional Monetary Systems

Bitcoin Market Overview

Bitcoin is a virtual, decentralized monetary system based on digital tokens without intrinsic value and has no central bank; it relies on the users who are recording transaction on a publicly available ledger. Most major retailers have accepted Bitcoin to be part currency and are now exchanged with physical goods purchased online and most authorities worldwide have recognized its legitimacy (Pagliery 2013, P.14).

Bitcoin has market capital value of $7,712,129,689 and a number of large companies are now making maximum use of the technology to ensure that they attain the highest benefits for the digital spectrum. Generally, digital and electronic experience is now part of the society, and the number of people using the global internet is now large and is expected to get even bigger in the coming years.

Bitcoins is still new in the market, and its workability is still being used and understood in the market. After four years of its inception, Bitcoin capabilities are still being figured out especially during economic uncertainties and stock market fluctuations, and major economies. Most governments are skeptical about this system, but it is open to debate and may bring regulation for transaction between users (Botelho 2013, p.54).

The main conundrum surrounding Bitcoin has made most companies who wanted to adopt Bitcoin in their transaction to slow down because of the fear of backfiring.

Well, obtaining Bitcoin involves a process that is not understood by most people. Therefore, the lack of knowledge especially the practical knowledge of obtaining the Bitcoin, as kept financial and telecommunication experts at bay. However, there are still keen interests among market enthusiast to grab market at the earliest.

The number of individual investors and technology enthusiast have are now well aware of Bitcoin’s usability and recommends the use of Bitcoins. They have also documented on what Bitcoins are and how they are obtained. They have also explained what Bitcoin mining is, who Bitcoin miners are, how and which software mines Bitcoins, and more information related to Bitcoin are now available. However, many people are still skeptic about the whole system.

Evaluation

Advantages

Bitcoin presents a lot of benefits as well as possible pitfalls. It is easy to access as it only require internet connection and no need for bank accounts and allows its users to transfer to anyone overseas without the need for expensive middlemen such as banks, middlemen and agents’ commissions.

Since the system allows the users to transfer money in form of Bitcoins across the international boundaries, most users view the system as a time saving system, which allow them to transfer money with the lowest cost form one country to another unlike other online banking system.

Disadvantages

On the other hand, Bitcoin market is still on the conceptual age and is volatile in terms of value of the currency. Bitcoin is also not a main exchange tool like money that are mainly used for exchange in the market for the main commodity such as food and gas. Although some companies have adopted the use of the Bitcoin system, it is still limited.

Expected demands are also expected to push bitcoin value higher, therefore, speculation about its stability and overall acceptance is still not clear. For instance, China has banned the use of Bitcoin throughout the country. Bitcoin is also the first independent internet currency that is governed and maintained by its users.

Therefore, there are some speculations that heavy mandatory tax and higher payment fees might be introduced to the system.

Note that Bitcoin is a cryptocurrency; a currency that involve a monetary transaction, which is heavily cryptic using a software which issues the user with a number of latter addresses which will be used in order to transact. The transaction is done peer to peer without any governance and regulatory body that track that source and the recipient.

Generally, Bitcoin transfer is completely untraceable and allows complete cover over identity of the parties involved in this transaction.

Opportunities

The Cryptocurency was invented in 2009 and has gathered a strong, thriving pace since that time. Although the thriving phase is still slow, with the modern digital world, the system is turning to be the next step in money transfer, online bookings and payments, and exchange by using digitally signed messages that transfer ownership of Bitcoins.

Addresses that authenticate payee’s identity for the recipient are normally used as digitally signed messages.
Bitcoin payment transfer is done digitally without the need for exchange rate fees, which make it the best solution for users who are growing day by day.

Bitcoin appeal in most part of the world is slowly revealing some opportunist and technolibertarians all over the world. The main reason is due to the fact that it allows users to make online purchases in retail stores without having to reveal their identity. It does the same thing as credit card with your name and a number on it but does everything online.

With Bitcoin, one can avoid paying high transaction fees without having to worry about their account getting compromised due to hacking or fraudulent results of charge-backs.

Moreover, Bitcoin users receive a lot of discount from various shoppes, which make the use of the currency more appealing. Along with these benefits, Bitcoin users utilize opportunities offered by Bitcoin to spend their money internationally or in foreign where worries about converting the hard or electronic money to local are avoided. By using Bitcoin someone avoid converting money from one currency to another ensuring that they avoid conversion fees (Forrester, Daniel, and Mark 2013, P.31).

Threats

Mölleken and Dirk (2012) made it that it is normal for an innovation to go through the hurdle of rejection stage, speculation, skeptic, and finally acceptance. Bitcoin industry ever since its inception has been going through phases of uncertainties, and it is expected to remain it the same state for a longer time. Bitcoin has been in the market for only short period of time, and its wave is still new to most techies, finance enthusiast and governments.

Ever since its inception in 2009, the Bitcoin digital currency’s proxies is spiking at a rate which some considers a good boost while some think that it is a major disaster waiting to explode. However, since it does not include authentically approval or regulated terms and condition, the threats of misuse and exploitation are severe.

Although a number of agencies have acknowledge its legitimacy, of its decentralized status, the Department of Home Security (USA) view Bitcoin as one of the emerging threat and an imminent dangerous tool for payment that criminals can use the money exchange tool for payment of assassinations without any trace. According to Bergesen, Kevin (2014), Bitcoin has also be blamed for its ability to provide anonymity in cyberspace, which call for an aggressive posture to deal with Bitcoin and other cryptocurrencies.

Recommendation:

In addressing issues related to Bitcoin, the government should recognize it as a property, and it involves and should involve Bitcoin stakeholders when creating regulation governing the system.

Presently, there are only two opinions explaining Bitcoin’s status in the law. One of the available opinions defines it as a medium of exchange that operates like currency, but does not have all the attributea of a currency.

In another opinion, a USA district court ruled it as a currency that can be used to trade for goods and services and even pay for individual good and services (Barski, Conrad, and Chris 2014, p.31).

Bitcoin is in an embryonic state for both technology and community users. Any government and intervention or regulation runs the risk of being prosecuted of acting as unregistered MSBs user. Such great risk may end up in a massive freezing effect on Bitcoin users (Babaioff, Moshe, Shahar, Sigal, and Aviv 2009, p. 9).

According to Gandal, Neil, and Hanna (2013), another great problem facing Bitcoin usage in most parts of the world is a lack of legislation that clarifies whether the Bitcoin operation and maintenance is confined under the law.

The Future of Bitcoin

In order to make the currency useful in most part of the world,  governments need to make some key changes on how  Bitcoin and other virtual currencies are regulated.

It is highly recommended that the U.S. federal government should help to stabilize the currency by maintaining a reserve for Bitcoins. They could then trade on Bitcoin to serve the moderate supply and demand of the Bitcoin, stabilizing the dramatic shift of the market. Some clear evidence show that the government is already holding about 3% of the global Bitcoin supply.

Therefore, the government should help in ensuring that the Bitcoin Network remains honest by providing computational power to honest nodes in the network.

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