-Written by Ho Jung Min
Traveling abroad is a thrilling life experience: the new culture, the delicious food, and of course, meeting new people. As you step on a foreign, unfamiliar land, you know that you can expect the unexpected. Despite all the excitement, most of you probably know how tiresome currency exchange is: the different numbers, values and the leftover foreign currency from your trip. Moreover, with the advent of technology, transactions on-line has become prevalent which is creating a much broader network of exchange. As the world becomes increasingly complex and interrelated, it is difficult to ignore the complications involved in currency exchange. Then came Bitcoins, which is a new form of currency that could revolutionize our global financial system.
Bitcoin is a form of digital currency that operates without central authority or banks; managing the transactions and the issuing of Bitcoins is carried out collectively by a network of private computers. It is not linked to anything of real value, like an online token which has value that is ascribed to and of itself. It is the first notable independent virtual currency and was launched in January 2009, developed by Satoshi Nakamoto. Created by an open-source, it uses decentralized peer-to-peer method; transferred from person to person. The operators of the network of private computers are called “miners”, and rewarded with transaction fees and newly minted Bitcoins. They are created in a way, which insures there will never be more than 21 million Bitcoins on the “market” at any one time, locking down their finite quality and meaning they should never be devalued. So is Bitcoins our future currency? Like everything else, there are merits and demerits in adapting them as our global currency.
Let’s start with the pros. First of all, its key strength is its peer-to-peer design. A purely peer-to-peer version of electronic currency would allow online payments to be sent directly from one party to another without going through a financial institution. It would truly be a democratic currency, excluding the possibility of manipulation. Another benefit to Bitcoins is its convertibility. Bitcoin is the first free market unit in the world that creates convertibility to other units through a currency exchange. Mutual Credit-based barters can use Bitcoin technology to create convertibility without dollar backing, having full control over how their money is spent. Nevertheless, there are concerns about Bitcoins. Its deflationary nature is the main concern. The supply of Bitcoins is limited, which means they will be divided to fulfill the overflowing demand. They may have put out the biggest fire but this quick band-aid solution will lead to appreciation and its deflationary nature will surface. Another problem is the interest issue. There is no sign of cheap credit, but as the market expands, a banking system will be necessary to provide credit based on deposits. This will deteriorate the limited supply of money, and also lead to very high cost for capital.
Taking in something new is always difficult. People are used to the status quo and fear what lies in the unknown. However, if we had chosen stability instead of change we will never have developed robots or smart phones. Like everything else Bitcoins is bound to have a dark side. This does not mean that we should rule out Bitcoins completely. There is always a possibility that taking a chance may turn out for the best.