Published on December 21st, 2013 by
By EDDIE J - Dec. 21, 2013
Bitcoin is a relatively new digital currency, but it's not the first to spring into existence either. However, the unique properties of Bitcoin have so far kept the system from imploding. Each dramatic shift Bitcoin survives presents a sign that we are watching the birth of a genuine new currency.
Emotions Run High
The story of the tulip mania in Holland portrays a time when people practically accepted tulips as currency. To a modern person, accepting flowers as a means of exchange seems delusional. Yet, history is marked with strange items used for exchange. Some pre-colonial Native American tribes used seashells as an exchange medium. The first people to accept tokenized paper money must have looked like fools to the people still holding commodity based coins made of gold and silver. Virtual in-game items seem like a complete waste of time to someone who has not accepted the value that the holder has placed on the intangible items. Bitcoin still seems strange to people because it has not been fully adopted. In time, assuming Bitcoin continues as it has, people will treat it like any other familiar currency.
Bitcoin Solving Problems
The failures of the banks made visible during the 2007-2008 crisis and the following Great Recession have brought Keynesian economics back into favor. The current policy inflates money to redistribute wealth from people who have more to those with less. The idea is to make it easier for people to continue spending, repaying debts, and to keep banks relevant. It sounds good when there are no alternatives. The Bitcoin solution removes the need for banks altogether. Your company pays your Bitcoin wallet and you pay for things directly without a company holding your money. No one needs to inflate bitcoins to balance out the level of debt and spending. You spend what you have, like cash, and only the consensus decides the value of bitcoins.
Privacy vs. Technology
Privacy was an early selling point for Bitcoin's new users. However, the understanding of cryptocurrency has grown and the early views have changed. The network is now viewed as one of the most transparent ever. The public Bitcoin ledger known as the blockchain is a record of every transaction on the network. A pseudonym string of seemingly random numbers is the only thing that conceals a person's identity on the blockchain.
A person committing fraud can conceal their identity by using a mixing service, similar to a traditional money launderer but those transactions persist in the blockchain. Theoretically, with enough time and resources, any transaction can be tracked. What bitcoin will end up looking like or how it will function in the future is not completely clear yet. In twelve months, Bitcoin may have different properties that adds another layer of privacy or maybe consensus will decide that some transparency is for the best.
A New Way Forward
In the Bitcoin network, transactions are low friction. Sending money around the world happens in hours and not days. There are no bank checkpoints or holding periods. No one can freeze your account and companies can't store and withdraw from your wallet address. The days of handing over your debt card and all the access to your checking account might be numbered. The old saying of caveat emptor or buyer beware would once again be true because all sales are final. Merchants can still handle refunds but Bitcoin doesn't allow people to reverse a transaction through their bank. Without all the leakage of traditional money systems, the fees for Bitcoin are extremely small.
To this date, Bitcoin has been one of the most successful digital money systems. The network recently surpassed PayPal in total amount transacted but everyday use is still limited. Even with all the achievements, Bitcoin is facing a number of challenges including regulatory confusion, government opposition, and price manipulation. On top of it all, to most people Bitcoin is still a strange occurrence. Yet, the future of Bitcoin still looks bright. The power of consensus on a global scale has never been actualized to this extent in the history of humans. The Bitcoin system has already reached so high without backing from a military force or the empty promise that governments never default. Bitcoin will continue whether one person says it is a currency or not. However, the big question has not been answered yet. Everyone is still wondering if Bitcoin is the favorable currency of future and we are waiting for the consensus to answer.