Bitcoin Digital Currency
The world is experiencing numerous technological advancements in all aspects of life. The various areas that are witnessing these technological advancements are information communication, transport sector, health, crime prevention units, learning, as well as the money markets. In the past decade, several changes have occurred in the financial markets in a bid to change how currency is stored, circulated, and created. One global change in the financial sector is cashless business transactions, a move that paved the way for online businesses, which have now been embraced in all states globally. The arrival of the bitcoin and other digital currencies is also gradually gaining momentum globally, and many people deem it to be the main reason why banknotes will soon become a thing of the past.
Bitcoin
Launched in 2009, bitcoin is a type of digital currency (Velde, 2013). Other forms of digital currency include Etherium, Litecoin, Etherium Classic, Stella Lumens, Zcash, and Ripple. In recent years, Bitcoin has attracted a lot of interest all over the world. Many people view this currency as a potential replacement for the existing banknotes being used across the globe. As at the end of 2013, there were 11.8 bitcoin units. Unlike the physical coin, bitcoin is divisible up to the eighth decimal place (Velde, 2013).
Theoretical Characteristics That Support the Creation of the Bitcoin
Most people view bitcoin and other virtual currencies as the ultimate game-changer in the financial sector. There are several theories and arguments which are in support of the creation of the bitcoin virtual currency. These reasons take into consideration such factors as demand and supply, resources, human behavior, as well as concepts such as opportunity costs.
Globalization has taken over the entire world. Numerous technological advancements have transformed the world into a global village, with many transactions and activities happening faster and efficiently. The success that has been brought about by technology has increased the demand for digital currencies such as bitcoin (Velde, 2013). The need for online shopping and businesses is increasing. The main reason for the increasing demand is the efficiency with which people will conduct their monetary transactions, compared to the current use of banknotes and physical notes (Velde, 2013).
As a digital currency, bitcoin will be a universal resource. As a global resource, bitcoin will not need conversion processes to be used. It will be uniform all over the world. The current banknotes and physical notes have got different values. As such, one has to keep converting them according to the global exchange rates. Moreover, as a digital currency, bitcoin will not need resources such as printing papers and other materials (Velde, 2013).
Human behavior is another crucial reason for the creation of bitcoin. Human beings want to stay up to date with significant global developments in many areas such as education, work, financial markets, health, and governance. They have embraced the use of technology in every sector, and as such, the thought of bitcoin becomes a promising one. Additionally, the use of banknotes has experienced numerous forms of fraud. Cases of bank robberies, fake notes, tax malpractices, among others, are common (Velde, 2013). However, the introduction of bitcoin seeks to streamline everything and curb all monetary malpractices. Through bitcoin, people will carry out transactions without any intermediaries; they will also have their data and accounts encrypted and key-protected, limiting fraud (Velde, 2013).
Business concepts such as opportunity costs are also a reason why bitcoin should be embraced. Bitcoin mining entails a considerable opportunity cost. However, like any other business, this is a decision that the market is adopting. Persons and companies in the markets find bitcoin exciting enough to put resources into it (Velde, 2013).
US Government’s Role in Advancing Digital Currency Use
Even though the United States governments is among the largest holders of bitcoin, its relationship with the digital currency has raised numerous issues since the inception of the currency. The United States is the biggest economy in the world. However, China, the second-largest economy after the USA, and the world’s fastest-growing economy has got ambitions of becoming the largest economy in the world. Financial experts view digital currency as one way through which the US might lose its global economic dominance (Velde, 2013).
The United States should move swiftly to control the world’s digital currency platform. This way, it would be able to control the world’s financial markets still. Wielding off competition from upcoming economies should be the first step taken by the US government in advancing the use of digital currency. The rise in digital currency use means the dominance of the US dollar in global financial markets is fast diminishing (Velde, 2013). Thus the US needs to move swiftly in regulating thee digital currency platforms.
Considering such factors as competition, fairness, and regulation, the current digital currency market structure is not sustainable. Even though bitcoin is deemed the future of global transactions, the environmental sustainability of the digital currency is under doubt. As the digital currency systems approach its ultimate resource limit, costs, and efforts required to maintain the system will be very high. The mining of new bitcoins will be costly, considering such costs as hardware and software maintenance (Velde, 2013). Additionally, there is increased competition in the creation of digital currencies. With no institutional regulation for the bitcoins, there is room for cases of unfair dealings by rogue governments. Unless such issues are looked into, the adoption of bitcoin may not be sustainable in the future.
Bitcoin Monopoly in Digital Currencies
It is worth noting that bitcoin has a quasi-monopoly on the digital currency market. Unlike other digital currencies such as Litecoin and Zcash, Bitcoin has gained much popularity all over the world. Compared to other cryptocurrencies, bitcoin gets a considerable percentage of media attention (Huberman, Leshno & Moallemi, 2017). This has made it to be known globally. Research shows that most people globally will opt to trade in bitcoin as compared to other digital currencies. This shows that bitcoin enjoys a monopoly over other forms of cryptocurrencies all over the world, thanks to the media that contributes to the popularity of the digital currency.
When it comes to the trading market share, bitcoin is the largest by far. As of March 2015, a single bitcoin unit was trading at over two hundred and ninety US Dollars with a market cap of over four billion US Dollars (Huberman, Leshno & Moallemi, 2017). Coming in at second and third positions were Ripple and Litecoin, respectively; Ripple had a market cap of eight percent, the latter had just two percent. While bitcoins market cap was valued at over four billion US Dollars, all other cryptocurrencies, otherwise referred to as altcoins, had a combined market cap of only six hundred and twenty million US Dollars (Huberman, Leshno & Moallemi, 2017). This was roughly twenty percent of bitcoin’s total market cap. Additionally, compared to the other cryptocurrencies, bitcoin has witnessed a tremendous rise in its use as a medium of exchange for goods and services. It is thus, right to note that bitcoin enjoys a quasi-monopoly on the digital currency market, compared to other forms of cryptocurrency (Huberman, Leshno & Moallemi, 2017).
The Future of Digital Currencies
Digital currencies will soon become an integral part of our lives in the future. Several factors point to the digital currency being adopted for use all over the world. Currently, as the world grapples with the ravaging effects of the Covid19 pandemic, research has shown that the use of banknotes and physical coins could be playing a vital role in the spread of the virus (Auer, Cornelli & Frost, 2020). In a move aimed at taming the spread of the virus, most countries have shifted to online business and cashless transactions. While such a step is essential in taming the spread of the Covid19 virus, it has put the future use of physical cash in doubt. On the other hand, the move has paved the way for further considerations in the use of digital currencies, presenting an excellent opportunity for its adoption.
Digital currencies present an opportunity for individuals to achieve efficient and seamless transactions. Moreover, with a promise to end the challenges that have been witnessed in the use of physical cash and third-party intermediaries, the digital currency seems to have been globally accepted. Future business plans are looking out for safety and convenience, factors that are guaranteed with digital currency (Velde, 2013).
Conclusion
Launched in 2009, bitcoin is a type of digital currency, deemed to be soon replacing banknotes and other physical notes. Other forms of digital currency include Etherium, Litecoin, Etherium Classic, Stella Lumens, Zcash, and Ripple. Several reasons in support of bitcoin and other cryptocurrencies have been put forth. These reasons take into consideration such factors as demand and supply, resources, human behavior, as well as concepts such as opportunity costs. The US government should move swiftly in controlling the use of bitcoin and other digital currencies to maintain its position as the world’s economic powerhouse.
References
Auer, R., Cornelli, G., & Frost, J. (2020). Covid-19, cash, and the future of payments (No. 3). Bank for International Settlements.
Huberman, G., Leshno, J., & Moallemi, C. C. (2017). Monopoly without a monopolist: An economic analysis of the bitcoin payment system. Bank of Finland Research Discussion Paper, (27).
Velde, F. (2013). Bitcoin: A primer.
