Simply put, Bitcoin is a decentralized digital currency that is used to conduct normal transactions all over the world. A much broader statement is that Bitcoin is the beginning. It is a catalyst for change that will most likely determine how currency is to be handled for the next hundred years. Bitcoin was developed under the pseudo name Satoshi Nakamoto in 2009. Because it is digital, Bitcoin is able to be “mined”, or created, by anyone using the Bitcoin Miner application. Don’t think this is a get rich quick scheme though. In order for Bitcoin to have effective stability, the amount of actual currency that an individual can mine is limited by current technology and safeguards hardcoded into the system. This ensures that Bitcoin does not have wild fluctuations in it’s value, such as hyperinflation.
Past currency and hyperinflation
There have been many past currencies that were unsuccessful for one reason or another. The main reason past currencies have died is that they were all tied to governments, and government wars, with a few exceptions. Some large American examples of this are the Continental dollar and the Confederate dollar. It is thought that both failed because they were fiat currencies issued as war debt. When consumer doubt of the currencies rose it led to rapid inflation, which devalued and led to the abandonment of the currency . Other examples of the more severe hyperinflation are: the German Mark in 1923 when prices doubled every two days and the Zimbabwean dollar which had an inflation rate of 7.96 billion percent in November of 2008.
There are also several alternative currencies that are in existence, but have failed to spark interest like Bitcoin. This is because Bitcoin is the first alternative currency that is encrypted and decentralized to such a degree that it has public trust. This public trust also leads to the acceptance of the currency by businesses, which is ultimately the key to a successful currency.
Bringing anonymous back
The inherent nature of past currencies and current currencies in cash form is that they’re anonymous. This anonymity has been crucial to the currencies success because it is human nature to not be tracked. This anonymity or at least the trust of anonymity disappeared when consumers started using banks to handle the majority of transactions. Although there are several banking privacy laws in effect, banks track every purchase that is made with a debit or credit card. Bitcoin on the other hand is a system that is not based as much on privacy as it is based on anonymity. This seems a little counter intuitive, but since a Bitcoin transaction creates a public record it is not by definition private. The anonymous factor comes in to play because even though everyone can see a transaction is made, the two parties are only identified by their “Bitcoin address” which is only identifiable to the transaction holder.
Anonymity on this scale has sprouted many goods and services to utilize Bitcoin on the grey and black market. An example of grey/black market goods and services utilizing Bitcoin is the silk road, an encrypted service that sells a plethora of drugs and narcotics. This activity has mainly been frowned upon by Bitcoin supporters though, trying to legitimize the currency. Ultimately being anonymous and detached from any central bank will be what brings Bitcoin into the spotlight as the future of currency.
The future of currency
With the ever presence of the internet injected into everyday life, the currency of the future will have to fill a couple of characteristics. The first, and most important, is the requirement that governments do not have explicit control of the currency or its market. In the world economy, one major facet to the distrust of foreign currency is the ability of a government to instil manual fluctuations. This direct interference is not always a bad thing, especially when it comes to controlling inflation, but it can also be used as an economic weapon. Countries such as Singapore and China manipulate their currency in order to make it more favorable over other currencies. The weaker currency ratio then results in those country’s goods being comparatively cheaper, this has been touted as the first acts of a trade war by the target countries, such as the U.S. Bitcoin, on the other hand, is not manipulated in this way because it has no country to report to and is the basic form of a currency.
The second requirement of a future currency is anonymity. As exampled above, Bitcoin has built in anonymity and is even a trusted source for individuals seeking to do strictly anonymous exchanges. Being as that Bitcoin fulfills both of these requirements, it is very likely that it will be the model for the future of currency, if not the one word currency itself. Look for Bitcoin to hit a tipping point within the next 10-20 years as a currency of choice, especially when conducting internet transactions.
Bitcoin adoption is increasing and reaching new businesses every day. The more people who get into this virtual currency, the more difficult it will be for traditional banks to continue ignoring it. For those who’d like to start using Bitcoins, I found this place with tutorials: http://thebitcoinmaster.blogspot.com
I agree, although acceptance by the public is important, businesses are key. It seems like just recently several businesses have started accepting (reddit). I am interested in what banks will do when they are forced to pay attention. Thanks for the link!
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