Question

In: Finance

You must select a financial topic currently in the news and give us a overview and...

You must select a financial topic currently in the news and give us a overview and summary of the topic and it's importance. Include your opinion of the topic. Your review should be between 250-350 words long.

Solutions

Expert Solution

Greetings,

I choose the hot topic bitcoin and block chain process.

Bitcoin is defined as an electronic medium for exchange of money. It has got no centralised agency controlling it. Its architecture is similiar to World Wide Web which is also not owned by any single entity but updated by different users across the world.

Bitcoins are created by a process called mining. They are sent by one user to another using secured technology known as cryptography and are mostly transacted through bitcoin exchanges.

Bitcoins can be bought against another currency or against goods or services. These days even public companies raise funds by issuing bitcoins to investors instead of share certificates. Such rights in bitcoins are just like tokens and can be sold by investors on exchanges.

Legal status of bitcoin varies from country to country. While no single country can control or shut down its network or can't change its algorithm, but they can obviously criminalise it or shut down the bitcoin exchanges in their jurisdiction, but in the times of globalisation no country would go to such extreme levels. Countries like India have warned their citizens about trading in bitcoins at their own risk and clarified that it does not have any legal or government backing.

Every new invention has its pros and cons and bitcoin is not an exception to it.

Benefits include -

  1. Faster exchange of funds and elimination of physical movement of cash as bitcoins are accepted as payment solution across US and many other countries.
  2. Elimination of various intermediaries.
  3. Market Driven pricing.
  4. Can act as substitute of hard currency in future.

While most of the benefits are quite obvious but as per my opinion use of bitcoins have more costs than benefits -

  1. Security is questionable
  2. Jurisdiction is difficult to determine for taxation purpose
  3. Since there is no government backing, there may be fraud with investors.
  4. The whole system of bitcoins may fall and people will be left with nothing.
  5. Leads to excessive speculation or can even used for carrying out illegal transactions.
  6. Huge energy consumption in mining process.

So as per my opinion , use of bitcoins has no apparent additional benefits which can justify its existence. Even other payment solutions like e-wallets or electronic funds transfer etc provide the same benefits with more security and higher regulations.


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