Fiat currencies are the most popular types of money in the world, with over 80% of global GDP being created by currency issuers. Despite their popularity, they have been in rapid decline due to the rise of online currencies like bitcoin. Bitcoin is a cryptocurrency that has been growing exponentially since its creation in 2009 and provides an alternative to fiat currencies like dollars and euros because it is decentralised, has a fixed supply, has no inflation or interest rate, and can be sent between users without needing an intermediary bank. Even in its most recent boom, bitcoin is growing exponentially, with a total value of about $4 billion in 2017.
This growth mirrors the growth of the Internet itself and has clearly shown that a democratic system that maintains decentralisation is able to adapt and continue to flourish even when it comes into direct conflict with fiat currencies. Certainly, many aspects of this arise from the presence of non-governmental organisations (NGOs) on the Internet. Dollars don’t work on the Internet, but bitcoins do. This makes currencies that are not government-based, such as bitcoin and other cryptocurrencies, ideal for the digital world. Recently, many banks have begun to accept bitcoins as a means of transferring money to bank accounts in lieu of dollars.
Bitcoin has worked because it is based on a fixed monetary policy or a supply limit which does not vary with time. In the case of bitcoin, it is now capped at 21 million coins. Unlike fiat money, bitcoin has a fixed supply and cannot expand without changing its monetary policy. This is a central issue that affects many online currencies and has been the cause of many of their problems in contrast to bitcoin. In digital environments like that of the Internet, money needs to be maintained in its digital form for economic transactions to occur efficiently.
How is digital currency influencing emerging economies?
2015 might go down in history as the year of digital currency. Over the course of 12 months, Bitcoin has been met with excitement and chaos, while legacy financial institutions have been met with scorn and derision. The story continues to unfold as Bitcoin is implemented by tech companies such as Microsoft, Expedia, and Shopify to help facilitate payments outside of their traditional channels. The digital currency isn’t just disrupting the payments industry; it is influencing emerging economies in a profound way.
Bitcoin is a digital currency, meaning it is digital and a currency. There’s no country or institution that enforces the value of this digital token. Instead, the network of peers (miners) and miners act as an independent system, enforcing the rules and conducting transactions on behalf of all users. In some ways, this works in a similar fashion to how gold is used as a currency. While the value can fluctuate based on the marketplace, gold (a precious metal) holds value because it’s hard to come by.
Blockchain technology is what distinguishes Bitcoin from other digital tokens and ensures the network is decentralised and secure. The blockchain is a ledger that contains every transaction in chronological order, securing each piece of data with cryptography. The miners are responsible for approving these transactions every 10 minutes and adding them to the ledger.
What drives the movement of the Bitcoin price?
Bitcoin is the currency of the Internet. It’s fundamentally different from other currencies in that it doesn’t belong to any country or institution. Bitcoin is decentralised, which means it has no central control but instead relies on its users. The Bitcoin price goes up and down based on people buying and selling bitcoin online (similar to stocks), their expectations of future price movements, media attention, and more. Bitcoin trading is the subject of academic research, but not much has been revealed about what drives the price of Bitcoin.
From a financial point of view, bitcoin is a very risky commodity. Bitcoin has no intrinsic value. It only has value “because the market says it does” (similar to gold). There is no productive capacity behind Bitcoin, meaning that each bitcoin is worth whatever people are willing to pay for it.
Will these currencies still be alive in a decade?
It’s very likely that Bitcoin, other cryptocurrencies, and the blockchain technology behind it will be with us for a long time to come. In fact, bitcoin and other cryptocurrencies like Ether, Litecoin, and Monero are outperforming most of the stock market right now. The reason is their decentralised nature. If a financial institution were to try to take out bitcoin or some other digital currency, the network could actually fight back in a way not controlled by the government. This is how we got to where we are today with Bitcoin. Bitcoin prime is a new cryptocurrency exchange that offers a smooth and easy trading experience. It has the features of other popular exchanges but with lower fees, better security, and more customer support.
One interesting attribute of blockchain technology is that it’s not only a currency. It can be used to securely store and transfer financial information, proof of ownership, contracts, land deeds, and more. Some even speculate that the blockchain could help ease the transition from government-issued currencies to the digital token.