Name:Professor:Course:Date: and how their characteristics and acceptance
Name:Professor:Course:Date: Crypto Currency to Replace CashIntroduction Today, the internet is a major contributor to changing the way things are done.
One of its impacts is on financial transactions. The internet and technology in general has changed the definition of money from the traditional physical legal tenders to other forms like digital currencies, virtual goods and mobile payments (Peng 1). Crypt currencies, peer-to-peer lending and crow funding have changed the way currencies exchange hands. Peer-to-peer lending refers to online lending of money between people. Crow funding is a way of soliciting cash online to fund a venture. Crypto currencies like Bitcoins are a digital or virtual currency protected by cryptography (Boel 147).
This paper will discuss crypto currencies, with emphasis to Bitcoins, and how their characteristics and acceptance will act as a viable replacement for cash. Defining Bitcoin The first digital currency to enter the revolution is Bitcoins, which was created in 2008 by a programmer by the name Satoshi Nakamoto. One unique characteristic of this mode of currency is that it is deregulated, that is, Bitcoin is not regulated by any government, financial institution or a commercial authority.
Instead, the currency is regulated by a peer-to-peer network of users that controls its creation and transfer (Peng 1). As a result of its independence from interference by third parties, Bitcoin users enjoy a high level of convenience and privacy. Its popularity is slowly increasing since it was incepted and despite that its initial users used to be mostly technology enthusiast, cryptography experts and libertarians, more people in the mainstream are gaining consciousness about the technology and they have started using it as a store of their wealth and in online transactions.
The Concerns behind BitcoinOne question that people interested in Bitcoin might ask is what exactly it is. In simple terms, Bitcoin is money and meets the theoretical definition of money that it is “any asset that is generally accepted for payment for goods or services or for debt settlement” (Kubat 410). However, there are still debates on whether Bitcoins match the of definition of a currency because it is not generally accepted and if it is to be argued as a form of money, then that definition applies only to the people who have accepted it.
Economics, however, feel that when such definition of Bitcoin as money is accepted, then it will mean that anything that is valuable can be accepted as money. The second problem about Bitcoin as money is the perception that money is an asset and that the issuer has liability and obligation that they must satisfy for it to become an asset. Bitcoin does not offer this liability or obligation.
Since Bitcoins have no central authority to regulate it, it does not have any accounting record in the balance sheet of the issuer to show a relationship between the issuer and the recipient. The other concern about Bitcoins is that it is being used for both illegitimate and legitimate transactions because it is not regulated (Rotman 3). Much of the discussion about the illegitimacy in the use of Bitcoin came in 2011 when Silk Road, an underground market that accepted Bitcoins to purchase illegal goods and services was cracked down Reasons for the Penetration of Bitcoins: A Promise to Future SuccessWith these questions at stake, the question of where Bitcoin gets its value for money needs to be answered. Bitcoin has no backing by either a government or a commodity and the only driver of Bitcoin’s value is social consensus (Peng 18). The people who adopted the Bitcoin were mainly interested in its security properties, as well as, the innovative application of cryptography. This decentralized nature of Bicoin has given its users a guarantee that there is no entity that can be coerced by the government to subvert the value of the currency to its own benefits and this keeps its value stable. As a result, from the small population of its initial adopters, it has diffused to the mainstream population composed of merchants, investors and venture capitalists who are optimistic of the future success of the currency.
With support from BitPay that was founded in 2011 and which has been a better proxy for the penetration of the currency, customers have gotten support for payment processing services that have enabled them to pay for merchandise using Bitcoins through an interface. Merchants, on the other hand, can deposit their Bitcoins to their bank accounts and it is due to this characteristic that the price of Bitcoins has been kept stable (Peng 18)Another factor that has contributed to the success of Bitcoin is that it has a predictable money supply because it is has a fixed rate. This characteristic is an important incentive to its adopters. Again, the larger the Bitcoin community and the more the resources dedicated to coin generation, the more the computation puzzle becomes complicated, so the earlier a person gets into the game, the cheaper the coins minted. This has again acted as an incentive to early adopters of the currency (Barber, Boyen, Shi and Uzun 401). Another appeal to Bitcoin is how it is easily possible to combine of divide it to any denomination. Bitcoins are also versatile, open and vibrant because of its distributed design that entices the creation of new businesses and applications.
The security feature of Bitcoins is also an enticing feature that is making the currency to flourish. The normal forms of payment are faced with transaction reversibility such as charge backs and credit-card frauds. Bicoin transactions are not reversible and such reversal incidences cannot occur so users can mitigate the frauds prevalent in cash transactions Conclusion Technology is the mother of all the advancements being experienced today, including developments in monetary transitions. Crypto currency has found its way into the financial transactions and as an alternative to cash.
However, it adoption in the future will depend on how economics marries with crypto currency. Bitcoin has most of the features that an ideal digital currency should have. It is a secure, divisible, offline capable, portable and pseudonymous. The only major concern that keeps some interested people off is the fact that it is not regulated and is decentralized. It lacks the consumer protection measures that can instill confidence in people to adopt it and replace the use of cash.
It is also abused by terrorists and cyber criminals. Nevertheless, ideas are powerful constructs and it is unlikely that Bitcoins will be killed by the government. Its adoption and increasing rate of acceptability is a trend to watch and possible indicator that it will replace cash transactions in future. Works CitedBarber, Simon, et al. “Bitter to better—how to make bitcoin a better currency.” International Conference on Financial Cryptography and Data Security.
Springer, Berlin, Heidelberg, (2012): 399-414Boel, Paola. “Thinking about the future of money and potential implications for central banks.” S v ER ig ESR ik S bank (2016): 1: 147-158Kubát, Max. “Virtual currency bitcoin in the scope of money definition and store of value.
” Procedia Economics and Finance 30 (2015): 409-416.Peng, Starry. “BITCOIN: Cryptography, Economics, and the Future.
” Retrieved April 16 (2013)Rotman, Sarah. “Bitcoin Versus Electronic Money.” CGAP (2014).