What should we consider specifically about Bitcoin? First, the once-obscure digital money has been on a remarkable journey: Due to the banking collapse in Cyprus, a surge of speculation, and extensive media coverage, the price of a single Bitcoin rose from $13 in January to $237 in mid-April before plummeting to $83 in a single day. You can make big money by investing in bitcoin trading.
Even though the crypto-currency has recovered considerably, its price is currently at $134; the roller-coaster journey has raised numerous questions. For example, as its supporters assert, is Bitcoin real alternative money that can replace dollars and euros online? Or are we experiencing a speculative bubble comparable to the Dutch tulip mania that is about to burst?
However, the concerns have not dissuaded a rising number of digital currency supporters, including notable Silicon Valley figures. On April 11, a consortium of investors, including Marc Andreessen’s venture capital firm Andreessen Horowitz, agreed to finance the Bitcoin-related company OpenCoin.
“A Natural Development of Libertarian Culture”
In the Bitcoin realm, actual currency does not exist. Supposedly, sophisticated cryptography and encryption procedures ensure that only the Bitcoins’ owner has access to them.
The Bitcoin supply is similarly fixed. Today, there are over 11 million banknotes in circulation, up from nearly nine million a year earlier. But, according to its supporters, Bitcoin’s growth will reduce over time until it reaches a maximum of 21 million in 2040.
Angel observes that the constant money supply is a significant lure for many early Bitcoin adopters. Moreover, it attracts many of the same individuals who purchase gold because of concern that quantitative easing, additional Federal Reserve and other central bank activities will spark hyperinflation.
They view Bitcoins as a secure currency that the government cannot devalue by producing excessive paper or “fiat” currency. “They have more faith in Satoshi Nakamoto’s algorithm than in Ben Bernanke,” he argues.
Bradlow notes that the existing electronic payments system is mainly effective; making payments, obtaining cash, and moving funds are relatively simple. Therefore, even though many retailers grumble about Bitcoin’s high transaction fees, few would have a practical motive to utilise Bitcoin unless its usage became significantly more prevalent.
“Cyprus Was the Ignition”
Bitcoins are a great cry from a perfect currency due to the same characteristics their proponents cherish.
The extraordinary increase occurred when the government of Cyprus attempted to implement capital controls. Its attempt to settle the crisis by requiring bank depositors to suffer a haircut alerted savers worldwide to the possibility that their funds could be taken in the event of a bank failure.
Experts warn, however, that Bitcoin purchases did not take off in countries on the verge of a currency crisis. Instead, the great bulk of purchases was made in the United States.
“Every bubble begins with a credible tale, something of value that will likely increase in value in the future. “People purchase it, the price rises, and it feeds on itself until it no longer does,” explains Angel.
Is Even This Legal?
Extreme privacy, which attracts many Bitcoin users, is a potential source of trouble. First, there is the possibility that the network’s stringent security could be compromised. Who will police alleged robberies or frauds in an unregulated and government-free zone? “Hackers will target any cyber money,” warns Bradlow.
It is challenging to picture authorities intervening on behalf of victims who have chosen to operate in a network designed to elude government oversight.
Theft is not the only security risk. For example, users connect their PCs to a global peer-to-peer network to mine Bitcoins. Angel explains that it is impossible to tell what else may be running on that network.
Conclusion
Given the market’s infancy and minuscule size, the United States and other governments have not paid much attention to Bitcoin thus far. However, the increase in valuations and the expanding engagement of venture capital firms may increase scrutiny. Matwyshyn observes, “It elicits some of the same worries we observed when securities were originally regulated.”
Johns Hopkins’ Hanke goes further. Since governments generate significant profits from their monopoly on creating money, he hypothesised that they would not allow Bitcoin to become a competitive competitor. “If this becomes a commercial danger to the government’s ability to produce money,” argues Hanke, “there will be a million reasons to restrict or ban it.”
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