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ECONOMICS, SOCIETY

COULD BITCOIN BECOME THE NEW GLOBAL CURRENCY?

Bitcoin has set record after record as a global currency. It also has the potential to become a universal currency. But, what are the realities behind the impressive figures?

THE RISE OF BITCOIN

Bitcoin (for its history, see this infographic) has experienced unprecedented success since their domain name was registered on anonymousspeech.com. Monday, it was reported that the single bitcoin hit a landmark point, reaching $2,251.61 dollars, which far exceeds the price of gold. Its exchange rate has increased in 23 of its past 26 sessions. It has been the top performing currency every year since 2010 (besides 2014). By the summer, it will be accepted at more than 260,000 stores in Japan, since it is officially legal tender in the country. The verdict against the Winklevoss Twins to not allow it to enter the U.S stock exchange may, in the wake of this success, be overturned.

All of this seems to point to Bitcoin becoming a currency on par with the Dollar, Pound, Yen or Euro; or — because of its decentralized and digital nature — it could become the global currency.

Bitcoins. Photo Credit: PROfdecomite, Flickr
Bitcoins. Image Credit: PROfdecomite, Flickr

WHY THIS MIGHT NOT BE SO GREAT

These figures, however, may not tell us the whole story. “All that glitters is not gold.”

The first thing that Bitcoin will have to do to continue its rise is to become more stable. The reason Bitcoin is so successful is also the reason it could fail. It has the ability to swing and shift extremely quickly: we need only look at when it dropped 15% in a matter of minutes in response to the Winklevoss Twin’s ETF verdict. One key characteristic of a successful currency, rather than its worth as an asset, is stability, which Bitcoin has not yet achieved.

Second, it will need to increase its transaction speed. In comparison with payment processors like Visa, the number of transactions Bitcoin can process is tiny: around 7 compared to thousands. This is because of each transaction has to be validated and verified by an individual due to it being part of a blockchain. And, even though it has the potential to stretch to 27, unless this value is increased there will forever be a serious limitation to how much bitcoin can grow.

Third, these exciting new figures may be artificially caused by an indirect centralization (centralization not through the legal process, but by market means — similar to a hostile takeover of a company). While Bitcoin is an uncentralized currency, if an individual miner (or collection of miners) take control of most of the mining then they are able to abuse the majority loophole, created as a democratic foundation of the currency. This would also allow the individual or group to rewrite the blockchain. As the majority of the miners are Chinese companies, and demand for the currency is increasing in the country due to the value of domestic currency falling, some fear the rise of state control in a system designed to be anti-state.

ALL THE EVIDENCE YOU NEED THAT BITCOIN IS A REAL CURRENCY:

 

Whether or not you know what blockchain is, you have probably heard of the seemingly mysterious cryptocurrency Bitcoin. Bitcoin and its underlying blockchain network are quietly making headlines around the globe. The recent success of Bitcoin and the security of blockchain may have some consumers considering an investment in the new denomination, but others are still wary. Newly released data further legitimizing the currency could be just the thing to push the undecided into the realm of Bitcoin proponents, however.

The Entire History of Bitcoin in a Single Infographic
Click to View Full Infographic

In 2008, Bitcoin was introduced by an anonymous group of programmers under the name of Satoshi Nakamoto, and then it was released to the public as an open-source software in 2009. Unlike other online payment services like PayPal and Venmo, Bitcoin is a peer-to-peer network that takes place privately between two users — there is no intermediary involved. The virtual currency is completely decentralized from any external influence, and all transactions are accounted for through a blockchain ledger.

While Bitcoin is thoroughly anonymous, all transactions on the blockchain ledger are available publicly. Using the time and date of a particular transaction, individuals could potentially match someone’s online address to their identity. However, all transactions made through Bitcoin are encrypted with military-grade cryptography, ensuring that the deals are secure.

Sending and receiving bitcoins is already as easy as sending an email, and it’s poised to get even easier thanks to BitPay.

THE WAY TO PAY

Bitpay is a payment processing service that allows users to spend bitcoins within a larger network of merchants. With Bitcoin’s unexpected rate of growth leading to longer delays in transactions and higher fees, Bitpay developers were pushed to accommodate the sudden popularity of Bitcoin.

“This friction is making us get more creative in how we do user experience design for delayed payment states on the BitPay platform,” co-founder Stephen Pair explained at the Distributed: Markets 2017 conference. “Our designers and engineers are constantly attuned to how we can make using Bitcoin intuitive,” he added.

The frequent updates appear to be paying off as the company recently released a series of charts revealing a positive trend in Bitcoin usage. The data shows a significant increase in the number of Bitcoin payments being processed daily and in the value of the payments being processed.

*3* Evidence That Bitcoin is Turning Into a Real Currency

*3* Evidence That Bitcoin is Turning Into a Real Currency

Experts attribute this to the “wealth effect.” Essentially, people who bought Bitcoin when it was significantly cheaper want to spend it now that the value is high. The trend also affects what people are buying with bitcoins. Bitpay merchant CheapAir, a site that sells plane tickets, hotel reservations, and car rentals, has noticed a higher upper limit in the spending of their Bitcoin customers.

“With bitcoin we tend to generate more sales in premium cabins like business class or first class,” CheapAir founder Jeff Klee told Quartz. “Certainly the average spend for the bitcoin customer is higher than a non-bitcoin customer.”

*3* Evidence That Bitcoin is Turning Into a Real Currency

This increased movement of bitcoins from consumers to companies highlights an important moment in the history of the cryptocurrency. While people initially saw bitcoins as something they could hoard, they’re now seeing them as something to spend.“Bitcoin [is being used] as a store of value, as a currency hedge, and as a payment method for economies without widespread credit card or banking access,” James Walpole, BitPay’s marketing manager, told Quartz.

If these trends continue, the increased acceptance of the cryptocurrency as an alternative payment method might be enough to push it all the way into the mainstream.

 

BITCOIN PRICES CONTINUE TO SURGE

  • Bitcoin continues its upward trend by once again raising its all-time high value at $1,758.45 a coin.
  • The reasoning behind the upward trend may not be clear but it is clear that the cryptocurrency will continue to at least be a focal point in finance.

BITCOIN OR BUST

Early adopters of Bitcoin, the novel currency sweeping the globe, have plenty to celebrate this year. The cryptocurrency has grown in value by 85 percent in 2017. It has enjoyed steady growth, topping $1,700 for the first time ever today. This is the latest milestone for the digital currency, however back in March, Bitcoin surpassed the value of gold for the first time in its history. And, there are no indications of it slowing down.

The previous success of the currency has been tied to the uncertainty in markets after the results of the 2016 US elections. However, that explanation can’t continue its potency for that long. Even more, the US Securities and Exchange Commission (SEC) still has to rule on whether or not they will reverse a previous decision to reject a high profile exchange-traded fund (ETF), so the reasons behind the currency’s burgeoning strength remain unclear.

GOING GLOBAL

Last month, Japanese policymakers made Bitcoin a legal method of payment. This was followed closely by an announcement that Russia would consider adopting Bitcoin (among other cryptocurrencies) in 2018. However, not all countries are readily willing to consider legitimizing Bitcoin. China, for example, has recently decided to restrict its trade.

Even with some minor hiccups, Bitcoin is set to revolutionize the way that we pay. Its footing keeps getting stronger as it continues to be the top-performing currency since the start of the decade, save for 2014.

The Japanese adoption of the currency could be a considerable boon toward it hitting the mainstream. Experts are expecting retailers in more than 260,000 stores across the country to be accepting Bitcoin. The ease afforded by the currency being international could make it a favorite for travelers as well.

The future of Bitcoin may not be entirely clear. But, if this upward trend continues, it will be difficult for policymakers to deny its rightful place in the pantheon of finance.

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