Could Bitcoin Become a New Global Currency?
Created in 2007, the world’s first decentralized currency now an accepted form of payment in dozens of countries around the world. As more countries begin to adopt this innovative technology, it’s clear that Bitcoin has the potential to become the new global currency not tied to a specific country or central bank.
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Many have wondered if bitcoin could be the next global currency. While you may have heard the term bitcoin thrown around, it is understandable if you’re still fuzzy on the intricacies of this digital payment system. Before attempting to answer the question posed above, it is important to understand exactly what a bitcoin is.
Bitcoin is a relatively new technology; in fact, it is less than a decade old. Created back in 2007, bitcoin is the world’s first decentralized virtual form of currency. As of fall of 2016, it is now an accepted form of payment in dozens of countries around the globe. As more nations continue to adopt this groundbreaking technology, it increases the chances that bitcoin will in fact become the next global form of currency and one of the few not tied to a specific nation’s economy or a banking system.
Experts estimate than in just three years, by the year 2019, there will be five million active bitcoin users. Of this five million, fifty-one percent of users are expected to be outside the United States.
These are impressive statistics; however, consider an even more impressive estimation: bitcoins are expected to be the world’s sixth largest reserve currency by the year 2030.
That said, just as currency and exchange rate fluctuate constantly depending on external factors such as politics, current economic conditions, stock market trading and various transaction trends, bitcoins react in a similar fashion. So far this year (2016) bitcoin achieved a market high of $467.80, and a market low of $358.77.
Mining is another aspect of bitcoin operations and transactions that is imperative to understand. To simplify a complicated process, understand that mining is—at its core–a record keeping service. ‘Miners’ ensure a bitcoin chain is consistent, complete, and unable to be tampered with. To accomplish this, miners repeatedly verify and collect new transactions into a new group of existing transactions called a block. It may help to think of it this way: miners enter the transaction data into a powerful computer that essentially processes a seemingly endless string of computations that increase in difficulty over time. So far in 2016, the revenue stream for bitcoin miners has reached an estimated $1,656,621.
But that’s not to say that each bitcoin transaction is huge; in fact it is quite the opposite. The cost per bitcoin transaction typically hovers around $7.22, while there have been 147 bitcoin blocks mined. Additionally, there have been 3,675 bitcoins mined to date.
The possibility of bitcoin emerging as the new global currency becomes even more important when you consider that China is currently pushing for just that—a new currency. Due to the recent economic downturn in the United States, the dollar understandably faltered. China would like to see a currency not directly tied to the American dollar, its stock markets and its banks.
The European Union (or simply the EU for short) also comes into play here, as they recently suggested that virtual currencies—like bitcoin—should remain exempt from many traditional taxes, including the infamous value added tax. The value added tax is an additional amount passed on the value of an article, increasing at each stage of an object’s production or distribution. Similar to good, old, cold, hard cash, this is a major boost to bitcoin’s eventual viability as a global currency.
Let’s also consider for a moment how bitcoin may be able to change the game of the typical banking system. Banking systems, while protected, are unfortunately pretty vulnerable to hacking attempts or malicious phishing. That said, banks are typically how we are forced to complete most current transactions—from the tiniest to the most life-altering purchases: buying shampoo at the drug store to exchanging funds for the purchase of a new home.
A cryptocurrency (which is sometimes called a crypto currency) is a form of monetary exchange using cryptography to safely secure virtual transactions and curb the creation of additional units of the currency (it helps to think of this as counterfeit virtual bills). Crypto currencies are a subset of digital currencies, and their encryption methods are always getting stronger—meaning transactions and money are better protected for hacking. These programs are starting to stabilize, which only makes bitcoin more of a power player in its journey to global currency.
The Pros and Cons of Bitcoin
While all of this sounds great, it is important to remember there are good and bad aspects of any major currency contender or any large scale change of process for that matter.
Pros:1. With a decentralized system of currency, government or banks don’t have any ties to the currency. This can be helpful if a nation is in turmoil or experiences a far-reaching economic downturn (similar to the “Great Recession” in the United States).
2. Transactions are typically tax free and inexpensive
3. Money is easy to transfer to locations around the world. In fact, it takes virtually no time.
4. Banks cannot use an individual’s saved bitcoins for their own investments. Again, this means that government-related economic depressions will not impact the value of a bitcoin.
5. The block chain technology is very successful at removing the necessity for intermediaries whose purpose is to bridge the transactional trust gap.
Cons:1. Bitcoin and other crypto currencies are highly volatile. This means the value of a bitcoin can fluctuate drastically—and often there is no way to predict a fluctuation or explain why one may have occurred.
2. Because bitcoins are not tied to a centralized institution, government, or bank their prices may rise and fall dramatically.
3. Users may choose bitcoins to pay for illegal goods and services (illegal substances, firearms, etc.) via the online dark web, as bitcoins can be harder to trace.
4. Bitcoins are currently saved in virtual, online wallets. While it would take the skill and expertise of a talented hacker to access these virtual wallets, it can be done, and hacking has occurred in the past.
5. Many consumers have a hard time understanding bitcoin or its complicated block chain.
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