Published on May 23rd, 2013 | by Olukunle Moses2
Bitcoin shows the potential of digital currency
Interest in Bitcoin, the digital alternative currency, has exploded in recent weeks, but there is still a sense of uncertainty surrounding the concept.
Bitcoin is more simpler than you see it. It is an alternative currency and many online sites use it as their currency of preference, e.g, Reddit. As opposed to ‘normal currency’, there is no central banking.
On the face of it, Bitcoins are no different to the Pound or the Euro. All currencies have a value so long as it is traded. If people were to stop trading Bitcoins, the value would reduce to zero, much as the Pound or Euro would.
Turn of fortune
The turn in fortune of Bitcoin has been nothing short of astounding; in 2011, 1 Bitcoin digital currency was valued at $2.
Today however, 1 Bitcoin is worth around an incredible $100, according to bitcoincharts.com. This is largely thanks to the uncertain economic climate in the wake of the Cypriot meltdown.
More and more people are starting to view Bitcoin as a securer form of money than the real thing.
Digital currency is not a particularly new idea. A quick glance at Wikipedia shows that there are over a dozen digital currency agencies in operation, but Bitcoin just happens to be the most successful agency by quite some distance.
How safe is Bitcoin digital currency overall?
Despite being a currency that is physically neither here nor there, Bitcoin does actually have a major failsafe.
According to the Economist a ‘unique digital signature tied to every single Bitcoin makes them impossible to forge’. Conversely, it’s estimated that as many as three per cent of all Britain’s pound coins are fakes and in America, the United States Department of Treasury, estimates that there are $1 in counterfeits for every $12,500 in genuine currency.
Furthermore, Bitcoin digital currency is a cryptocurrency. In summary this means that every Bitcoin transaction goes through an encryption and decryption process as the currency is moved between two parties.
Because Bitcoin and other agencies are not government backed and therefore lack accountability, the industry has a reputation as being a haven for criminals; the lure of untraceable (all you need to create an online account is an IP address).
Perhaps another reason Bitcoin digital currency is causing a stir is because it’s a force unto itself. While traditional currency transactions incur penalties when being transferred across different banking systems and countries, Bitcoin is un-taxed and instant. There’s no waiting for authentication between one bank to another, nor any fees for the handling of this currency.
For many, this power is too attractive to turn down – no matter how much these unique selling qualities might frustrate financial regulators and governments as well as banks.
A tarnished reputation?
It should come as no surprise to discover that by developing a currency so attractive and anonymous, Bitcoin has grabbed the attention of some less-than-desirable users.
According to news outlets like the BBC, the currency has been quickly adopted and embraced on sites like Silk Road, which have reputation for being the black market Amazon.
The marketplace is allegedly a haven for the sale of illegal drugs, as well as other offering other unscrupulous products such as fake IDs and pornography.
Naturally though, one could assume that as Bitcoin grows in popularity, the proportion of users looking to abuse its system will most likely decline.
How far can Bitcoin go?
There are concerns that Bitcoin could be a victim of its own success. Because of the hype surrounding the currency – and because of its limited supply (only 21 million Bitcoins will ever be produced) – the value of Bitcoin digital currency is rising rapidly as users attempt to stockpile as many as they can.
This ironically rather defeats the object of a fluid, working currency, because the more Bitcoins people have, the more expensive items will become to buy with them.
In this sense, Bitcoin is baring more similarities to that of a limited commodity, such as gold, as opposed to a currency.
All things digital
As with all things digital and new, trepidation is to be expected. Credit Cards were once viewed as a dubious alternative to paper currency, whilst the Internet was dismissed in its early years an unnecessary and un-viable.
Opinions, therefore, can swiftly change, and it will be interesting to observe the fortunes of Bitcoin.
As with every form of currency, however, Bitcoin is a bubble. As we’ve seen with the Euro and Dollar among others, when it bursts, chaos ensues. Whether Bitcoin can stand up to such a monetary crisis, and it is surely inevitable that they will one day encounter such a scenario, remains to be seen.
What do you think about the future of bitcoin?