Future of Bitcoin  

Transactions in legal tender do not necessarily require any internet connection. But unlike legal tender, Bitcoin is necessarily associated with the internet. So, even maximum possible transactions in the digital currency are bound to be less than legal tender, at least in foreseeable future. However, as a medium of exchange and fund transfer, Bitcoin enjoys some distinct advantages over fiat money.

It is true that regulatory authorities in different countries have been taking various steps regarding the new-age decentralised crypto currency. However, general tendency of regulatory authorities is to alert public about probable problems of Bitcoin transactions or investing in the crypto currency. It is feared that in the absence of any central authority for arbitration, dispute may occur in fund transfer or payments in Bitcoin. State authorities are also anxious about involvement of the virtual currency in terror-funding and illegal trade. Probing the possibility of tax collection from Bitcoin related earnings is also a regulatory motive. In the current phase of Bitcoin, the abovementioned concerns of regulatory authorities are quite reasonable.

However, the fact is that except a few jurisdictions (Example: Russia and Argentina), regulatory authorities in general are not banning Bitcoin. On the contrary, the technological innovation has been admitted by many countries as useful and it is accepted as a cheaper mode of transferring money. In fact the new-age crypto currency is the only mode that can ensure remitting any amount of money any time anywhere in the world with negligible cost and little time. Unlike Bitcoin, transaction cost in traditional modes of fund transfer must pass through various intermediaries who increase cost and time of transactions. Again, as per the original protocol, only a finite number (21million) of Bitcoins can be mined. Thus, it is non-inflationary by nature. Paper money, on the other hand, can be printed without limit creating inflationary pressure on prices.

From user's point of view the advantage of Bitcoin as a medium of exchange over 'card payments' lies in its innovative nature. Unlike card payments, "recurring charges" cannot be imposed by merchants in case of Bitcoin payments. Bitcoin payment does not require any trust on merchants or careful study of all terms and conditions before payments. Again, non-disclosure of buyers' sensitive data to sellers allows reducing identity theft. From seller's point of view, absence of 'charge back' condition in Bitcoin payments is like a boon. This is particularly true for cases of transactions in virtual goods (digital goods and services).

Severe fluctuations in the fiat money value of Bitcoin are a disadvantage of the crypto currency. However, volatility of Bitcoin prices in relation to fiat money in recent past was observed to be the result of speculative activities of hoarders and traders of Bitcoin. In the absence of any global co-ordinated regulation, regulatory actions of some isolated state authorities triggered huge speculative sale/purchase of Bitcoin in a short period and its fiat money value fluctuated from 95 USD on 29th June, 2013 to 1147 USD on 4th December, same year. The fiat money value is now around 640 USD in mid June, 2014. But the volatility of dollar value of Bitcoin cannot outweigh its advantages as a medium of exchange over legal tender. It only changes fiat money-value of the crypto currency. So, delinking Bitcoin with legal tender or no-convertibility of the crypto currency to fiat money will reduce/end the volatility.

It is true that Bitcoin, like other mode of payments, is not free from illegal use or fraudulent activities. But, unlike fiat money, Bitcoin is free from counterfeiting/forging.

Some critiques point out that maximum unit of Bitcoin that can be issued as per the original protocol is only 21 million. Hence it is insufficient for billions of daily transactions. But this criticism is unfounded. As per the original protocol, one unit can be subdivided up to 8 decimals which can farther be extended to more sub-units. So, finite number of Bitcoin is not a limitation for any number of transactions.

Although fully decentralised and not under any state-backed authority, transactions in the crypto currency can hardly be reversed. Because the protocol itself cannot be modified without active supports from its users. So, with growing number of individual users, it is almost impossible for any 'Big Brother' to block and reverse transactions. If any single entity tries to block or reverse any Bitcoin transaction, it requires more computational power than the entire Bitcoin network. Since the requirement of computational power for Bitcoin mining is increasing day by day, the emerging 'mining pool' of individual miners under a single server owner ( example :Ghash.io ) has become a necessity. But it is very difficult even for a pool owner to reach 51% of total mining power and thereafter perform double spending against the protocol. Because economic interest of individual miners in such a pool will rationally force them to leave the pool and join a relatively smaller pool.

Now, despite closure of Mt. Gox Exchange, growing acceptance of crypto currency (over 80,000 daily transactions and fiat money market valuation of 9billion USD at present) by educational institutions, big-businesses and others all over the world perhaps indicates bright future of Bitcoin. Big name like Google has started investing its venture capital to some Bitcoin related start-ups and 'eBay' allowing its platform to be used for Bitcoin selling. It shows that popularity and demand for transaction in Bitcoin is increasing. So the price and financial asset value of the crypto currency in fiat money is likely to rise.

In fact, Internal Revenue Service of USA has decided in March 2014 to treat Bitcoin as an asset like commodity. It will be treated like a company stock and will be taxable according to change in the value of a Bitcoin in terms of fiat money. According to IRS, Bitcoin would be taxed as assets subject to capital gain, depending on circumstances.

Finally, there is hardly any way to value Bitcoin, other than supply and demand. So, it is like scenario of Perfect Competition where demand and supply solely determine price subject to satisfaction of certain conditions. Thus, with upward trend of internet based payment, demand for Bitcoin as a medium of exchange will rise gradually. Financial asset value will also rise gradually with the increased demand. Rising asset value farther increases its demand as a financial asset. That is why some people are collecting Bitcoin as a "store of value".

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