In: Economics
Please read article below and answer the following question: What does the future of cryptocurrency across the global economy look like to you?
Bitcoin as an Ethical Dilemma
Bitcoin is an open-source, peer-to-peer digital currency introduced to the world on January 3, 2009, by developer Satoshi Nakamoto. The cryptocurrency is based on a protocol and software that allows instant peer-to-peer transactions and worldwide payments with minimal costs. In its few years of existence, bitcoin has seen unprecedented media coverage, a rollercoaster ride of epic spikes and epic plunges, and adopters from major retailers to lemon stands (e.g., Amazon, Target, Victoria’s Secret, and Whole Foods). Bitcoin has also been covered by numerous major news organizations (e.g., ABC, CNBC, Forbes, Fox News, Reuters) as the most popular form of virtual currency.
At the same time, ethical concerns exist with this new digital currency. The coupling of no regulations, virtually free movement of value, and a Ponzi scheme–like system have led renowned economist Paul Krugman to suggest that “bitcoin is evil.” At the basic level, Krugman says that “to be successful, money must be both a medium of exchange and a reasonably stable store of value.” He continues to say that “it remains completely unclear why bitcoin should be a stable store of value.” Joining in the discussion, Charlie Stross, the British writer of science fiction, says that “bitcoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states’ ability to collect tax and monitor their citizens’ financial transactions.”
What is the difference between bitcoin and normal currency, such as the U.S. dollar? Bitcoin is an unregulated peer-to-peer digital currency that is not backed by any other commodity such as gold or silver. Bitcoins exist almost entirely in the digital, online world, although some bitcoins have actually been privately minted. The U.S. dollar, like many other stable currencies, are paper or coin currency issued by a national reserve–type bank (in the United States, it is the Federal Reserve Bank). This means that dollars are really Federal Reserve Notes that are printed or minted at the U.S. Bureau of Engraving and Printing. The dollar is so-called fiat money, which means that dollars derive their value from the U.S. government regulation or law. Interestingly, the United States decided in 2014 that bitcoins will be taxed as property, not currency, for International Revenue Services (IRS) purposes. The IRS defined bitcoin as a “convertible currency that can be used as a medium of exchange, a unit of account, and/or a store of value.”
Technically, Bitcoin with a capitalized “B” refers to the technology and network associated with the currency, while bitcoin with a lower case “b” refers to the actual currency. The philosophy underlying the bitcoin is complete mistrust in authority or control—basically a perfectly stateless, market-based approach, with no country or region-level bank intervention. It is also very technical. Bitcoins are generated through a process called “mining.” The mining process involves adding transaction records to bitcoin’s public ledger of past transactions, which is called the block chain (i.e., a chain of blocks). Bitcoin nodes use the block chain to identify legitimate bitcoin transactions. Even in today’s high-tech world, the mining process is intentionally designed to be resource-intensive and difficult. This means that the number of blocks found daily by miners remains relatively steady. So, basically, in order to “mine” a bitcoin, a person has to solve a complex mathematical problem using substantial computational power. There’s a twofold reason for this: It controls the supply of bitcoins and incentivizes people to maintain the underlying infrastructure that keeps bitcoins in place.
A unique feature of the bitcoin is that the number of new bitcoins that are created is intentionally halved every four years until the year 2140, when it will wind down to zero. So, starting in 2140, no more bitcoins will be added into virtual circulation and they will have reached their maximum of 21 million. Perhaps most people will not worry about the year 2140 just yet, but it does mean that there is, technically, a finite supply of bitcoins. Such a finite number has the potential to adversely affect the value of bitcoins. Economist John Quiggin argues that this has resulted in “the finest example of a pure bubble.”
Perhaps more remarkably, bitcoins do not have any real value per se (cf. gold, silver), which means that the coin’s value depends on classical demand-and-supply economics, leading many financial experts to liken bitcoins to a Ponzi scheme, similar to Krugman’s viewpoint. A Ponzi scheme is a fraudulent investment operation that returns payment to its investors from capital paid by new investors rather than from profit earned (Charles Ponzi was born in Italy but became known in the early 1920s as a swindler in North America for his unusual money-making scheme).
Bitcoins have also been the subject of scrutiny by various governments because of concerns that they can be used for illegal activities. Some say the cryptocurrency is unethical because it is allegedly used to buy illegal drugs and guns and to pay for other illegal activities. Additionally, given its unique code, once stolen, bitcoins cannot be returned, and there is no central bank or agency that can help catch thieves. But, bitcoins have also attacked the cost of moving money around and have successfully created a simple measure of value that can be very efficiently moved around at virtually no cost.
Cryptocurrencies are the digital currencies used as a medium of exchange which have become very popular because of their potential of huge gains but their volatile market also involves high risk of huge loss.
Future Of Cryptocurrency across the world economy
1. New Medium Of Transactions :-
In 2009, first cryptocurrency Bitcoin was introduced and it resulted in occur of many other cryptocurrency that have now big share of global economy.Since the birth of Bitcoin , our view of money has changed and medium of transaction became fast and more secure.this innovation are bringing new payment method.they are used in several countries.people can buy plane ticket , pay taxi fare and so many ways anyone can use them.size and value of cryptocurrencies continue to grow.knowledge about it also spreding across the world.
2. Challenging the Dominance of USD
Today , Global economy runs through USD , It is a reserve currency of the global economy.But Bitcoin has challenged its dominance.Cryptocurrencies has potential to De-Dollerize the world economy.it can be a medium of international transactions and direct F2F transfers. Several other countries also wanted to end Doller Based system. Countries like Russian and China are taken so many attempts for this but every attempt ended in failure.But Cryptocurrency Like Bitcoin can start the process of De - Dollerisation of global economy.
3. Financial Integration :-
Cryptocurrencies can be a tool of financial stability , it could promote financial integration of global economy by connecting each country's economic systems.
4. New Source of Terror Funding :-
These currencies are created , processed and transact without any intermediaries , there is no regulations through any Centralized Authority , they are all managed by network users . So these cryptocurrencies can be easily used for funding the terror activities . It can be new source of unlawful acts and anarchic sentiments can use it and spread violence across the world