Bitcoin was introduced to the cryptocurrency market in the year 2009 (Burks 244). The currency has gained popularity due to a widespread acceptance by merchants and other consumers. However, there are issues surrounding its ability to be used into the long-term future due to uncertainties regarding its continued adoption and regulation.
This paper seeks to determine the origin of the currency, the usage of the currency, its reliability and sustainability in the future. The paper hypothesizes that there is value in the use of Bitcoins and that in the future, the value to consumers and investors will keep increasing.
This History Bitcoin and Rise in Popularity
Bitcoin is a cryptocurrency and is one of the many cryptocurrencies that have been introduced to the market. A cryptocurrency is a form of currency that is digital in nature in the sense that it uses bits as a store of value. Just like other digital currencies, more Bitcoin currencies are created by members who already have the currency. The members determine the value of the currency through their mining efforts.
The currency was introduced by Satoshi Nakamoto in the years 2009 (Naidoo 8). Nakamoto used the block chain technology to help create and manage the creation and use of the currency. The fault tolerant registry technology is used to ensure that transactions can be traced with time to guarantee the security of the value of currency.
Bitcoins Block Chain Technology
The users of Bitcoin are rewarded through mining. Mining is basically updating the transactions of members into the block chain system. The rewards come in the form of block rewards and transaction fees. The block rewards include the allocation of Bitcoins. However, the block rewards decrease by a half for every 210,000 of coins that are minted (Neilson et. al. 12). As the value keeps decreasing with time users will seek to become rewarded by a waiver of fees used to do transactions.
The currency system is generally reliable but is affected by occasional hackings when bugs are identified. For instance, a bug was detected 3 years ago led to users creating 184 million Bitcoins (Burks 245). However, the reliability of the system was noted and improvements were made to restore value and also ensure that similar hackings will not be experienced in the future.
Between the years 2011 and 2012, there was a widespread acceptance of the use of the currency for making payments. This was catalyzed by the formation of the Bitcoin foundation to standardize the operations of the system. As a result, 1,000 merchants accepted the use of Bitcoin as a form of payment (Redshaw 46).
The years between 2013 and 2017 experienced a sharp increase in the number of users and value of the currency. Between 2013 and 2015 there was an increase in the regulatory bodies such as the Financial Crimes and Enforcement Network of the USA. Consequently, 160,000 merchants and other institutions such as universities accepted the use of the cryptocurrency as a means of making payments (Naidoo 9). The value of the currency spiked from 450 dollars to a maximum of 2,500 to 3,000 in the year 2017. The table below summarizes the historical value that investors of the cryptocurrency have enjoyed over time.
Table of Historical Trends in Value Of Bitcoin
|End of year value (In dollars)|
|2017 (Current mid-year value)||2500|
Advantages and Disadvantages of the Currency
One of the main advantages of the use of the currency is its enhanced features that guarantee security and the ability to make anonymous payments. The personal details of users such as their address are not attached to the transactions and this enables them to make payments without being scrutinized (Redshaw 47).
The other advantage is that there are no third parties to transactions hence major savings can be made. For instance, the government is not involved hence the gains from increased value cannot be taxed. The use of peer to peer transaction eliminates the use of banks to make payments hence costs of making transfers are minimized.
The other advantage is the convenience of making payments from anywhere (Burks 246). As long as there is internet, a person can make payments from any region. This means that there is no need to go to banks to make payments for goods. Consequently, this will save the user time which can be spent doing other things.
One of the main disadvantages of the use of the currency is the fact that not many stores accept the use of the Bitcoin. The currency is at its infant stage and the number of users is much fewer as compared to those of national currency. This means that a person who wishes to purchase goods will only obtain goods from the few available outlets that accept the currency (Neilson et. al. 13).
The other disadvantage is the possibility of losing currency. The use of the digital wallet is susceptible to the capacity of the computer to avoid crashing. If a computer crashes, then cryptocurrency data can be lost. This can lead to huge losses for people who have made high value investments in the currency.
Finally, the use of the currency makes people susceptible to variability in prices (Naidoo 10). The prices keep increasing and decreasing with time. People who buy property at a high price are forced to accept lower prices in order to make sales. Another aspect of variability is the constant deflation which is a disadvantage to people who do not own the currency.
Value of Bitcoin to the Average Consumer
The average consumer of the Bitcoin will benefit from the use of the currency from the conveniences the currency provides as opposed to using normal currency. The other value is in the increase in price of the currency. The cryptocurrency is designed in such a way that it will not decrease in selling price.
There is a limit of 21 million coins that can be mined and the fact that more merchants will keep on accepting the use of the currency means that future demand will increase (Burks 247). Following the laws of demand and supply, it is acceptable that the price will increase due to the increasing capacity to trade the currency with much more ease.
The value of the currency will also increase from the savings made from lower transaction costs. The users of the currency do not have to use intermediaries to make payments. This is because payments can be made directly between one user and another. The payments cost only a few pennies as opposed to high costs which banks and other financial institutions charge those people who either transmit money or make payments for goods and services.
The other convenience is the ease of trading. The conventional platform for trading requires people to physically access payment services in order to make payments. However, those who use the currency can transmit money as long as they have a reliable internet connection (neilsan et. al. 15).
Regulatory Issues surrounding the use of Bitcoins
The other issue with the use of the currency is whether it can be classified as a legal tender or not. Bitcoins are legal tender when they are only sold for a national currency. National governments face the difficulty of determining the point at which the transactions can be considered to be taxable.
There have been conflicting perspectives to the points at which the currency can be taxed in the USA (Naidoo 11). However, the national regulatory body in the country insists that when the currencies are transferred to national currencies, there is a need to file for taxation. The same applies to sending of currency.
In this regard people are required to register with the Money Services Bureau in order to legally perform their transactions. However, there are other transmitters of the currency who hold that sending Bitcoins should not be charged because it is a peer to peer transaction (Burks 248).
The other issues with the use of the currency concerns the securities and exchange commissions. The point at which a disclosure for undertaking the activities that should be reported to the commission is not clearly defined. Case in point is a scenario where an administrator for a website for Bitcoins in the USA was arrested for transferring coins to a user in exchange for a part ownership of the website (Twain 151). As this is not an ordinary transaction, the case could not be determined in a court of law.
The consequence is that there is grey area in the determination of whether people who perform these transactions are liable to register with the Securities Exchange Commissions of their countries or to continue operating with the perspective that they should not be governed by the capital market authorities (Naidoo 11).
In addition, the inability of central authorities to trace transactions is virtually impossible. This is because people who deal with this form of currency are not required to reveal their identities for them to perform transactions. In as much as the national authority might wish to enforce regulations, illegal activities will still be conducted as long as cryptocurrencies remain in use.
What I Have Learned
From the research, I learnt about the Bitcoins and the rationale behind their existence. I now understand that Bitcoins are cryptocurrencies that have value, just like national currencies. However, the main difference between the currencies and national currencies is the fact that they are not physical currencies as opposed to other forms of currencies that are tangible. The other difference is that their value has a mathematical basis as opposed to national currencies which are backed on physical commodities such as gold.
The other thing that I learnt is the fact that the currencies have many advantages that are not available to conventional currencies. Bitcoins give users the ability to make payments without having to reveal their details (Burks 248). This can enable people to make their financial history anonymous. Another advantage is the fact that people can save money through sending money directly to other people without the use of intermediaries.
Another lesson I leant is the fact that using Bitcoins have disadvantages too (Redshw 49). The main disadvantage arises from the uncertainties that surround their use. As at the moment, there is no central authority to scrutinize the activities behind the use of the currency. The safety of the currency is pegged on the capacity of users to verify transactions and the block chain technology. With these mechanisms in place, there has never been a guarantee to safety of assets held in this currency as historical occurrences show that the system can be hacked.
Another lesson I learnt is the valuation of the currency. The change in value over time is different from that of national currencies. National currencies are susceptible to the policies that governments take. For instance, governments can decide to increase money leading to devaluation of currency. This leads to a decrease in value over time. However, with these of Bitcoins, there is no fear of devaluation. As a matter of fact, the value of the currency will keep on increasing with time as the currency approaches a maximum limit of 21 million Bitcoins (Naidoo 11).
The findings of the research show that the currency has grown over time. The number of merchants that accept the use of the currency has increased constantly since its inception in the year 2009. Similarly, the value of the currency has increased steadily over time despite the fact that it has been fluctuating in short-term periods.
From the findings, it is clear that the future of the currency looks bright. Bitcoin uses a defined protocol in determining its value and more people will continue accepting its use. The value of the currency will continue to grow as the organization keeps improving technologies that seek to close the loopholes that enable hackers to commit frauds.
The use of the currency is set to be simplified. As at the moment, there are difficulties in obtaining the currency. For instance, a person who purchases the Bitcoins over the internet will have to wait for periods that can even reach two weeks. These waiting times will reduce as a result of improvements in the technologies that promote trading in the currency.
Another possible occurrence in the future is an increase in regulation of the currency. National governments will design more rules to govern the use of Bitcoins. The result will be a perceived reduction in the risks that are associated with the use of the currency. This will increase the acceptance of the use of the currency.
Finally, from the analysis of the historical value of the currency, it is clear that future value will still continue increasing. However, the increase is uncertain. It might be high as in the initial periods but could reduce due competition from other cryptocurrencies. The consensus is that the value will keep increasing.
The findings of this research mostly show that the Bitcoin is on the rise. The demand of the currency is set to keep increasing as its maximum amount of 21 million nears. The historical value of the currency supports the idea of constant growth. \the findings therefore support the hypothesis that there is value in Bitcoins and the value will keep increasing in the future.
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