What’s Wrong with Traditional Payment Systems?
Since the introduction of computers, mankind has been on a quest to make money go digital. However, financial transactions have always required government oversight and the high barrier to entry means payment processing services such as Western Union and PayPal can get away with charging very high fees to transfer money over long distances, making small payments too costly to carry out. There are the ever-present issues of fraud and long transfer times as well.
It was only a matter of time before something revolutionary came along. The fact remains that for a good currency, you need to have certain characteristics such as durability, divisibility, portability, scarcity as well as recognizability. These unique requirements gave rise to an electronic payment system, a system that is based on cryptographic proof. This system allows two willing parties to transact unswervingly with each other without the requirement for a trusted third party. This consensus network is called Bitcoin; it is a form of money that utilizes cryptography to control its conception and management and does not rely on any central authorities. In a way, it works just like cash. You don’t need to give your name or any personal details to transfer bitcoins and transactions are irreversible.
The History of Digital Currencies and Bitcoin:
To the cryptographic community, the idea of digital currency was by no means new. Chaum in 1982 outlined his blueprint of an unknown e-cash scheme in his paper and after that many theoretical papers have been put out to improve the efficiency of e-cash constructions.
The design of Bitcoin was first introduced by Satoshi Nakamoto in October 2008. After which an open-source project was listed on source forge and was announced on the Cryptography mailing list on January 11th 2009. The basic idea behind the invention of Bitcoin was to produce a form of coinage that is liberated from any central authorities and can be transferred electrically, instantly and with very low transactions costs. Bitcoin has witnessed enormous success since its invention and growing number of businesses and individuals are now using it for electronic transaction.
By experiencing almost two decades of digital transformations, every part of our lives has transformed over the last twenty years. The vibrant Bitcoin community picked up on it early and is now rich and a good fan base to build on. Although there was some kind bewilderment and skepticism in the early stages of its introduction but huge media coverage for Bitcoin has been seen by the mass media. Transactions in Bitcoion are logged publically although it’s possible to operate discretely and if the community sees any problem then they tend to locate it.
The controllers of the Bitcoin have decided to focus on the markets of the developed countries because the technological infrastructure is already in place there. All digital currency schemes have either become direct clones of Bitcoin or modified copies since its introduction. In the words of Thomas Kuhn, Bitcoin has affected a paradigm shift in the world of digital currency, which is the new basis from which digital currencies will operate to move forward.
At its peak, Bitcoin had a total market capitalization of over $10 billion
November 2013, when Bitcoin was at its peak, it had a total market capitalization of over $10 billion, which is a record estimate in the history of digital currency and also an insignificant step towards larger integration in the economy.
The widespread adoption of Bitcoin in digital currency upset many institutions that have a vested interest in retaining the status quo. Before the establishment of Bitcoin, virtual currencies were accepted only in exceedingly small, close-knit circles. These currencies were exchanged very infrequently and were never possibly directed for any goods. But today, online merchants and businesses exchange Bitcoin for real goods and services and it has created a condition where digital currency has come very close to replicating the monetary characteristics of physical currency.
Scandals in the Bitcoin Community:
MtGox, which was the world’s largest bitcoin exchange, seemed as a good example of renegade entrepreneurism but inside it was a mismanaged, neglected and inexperienced. It collapsed into bankruptcy because of the disappearance of $460 million and another $27.4 million from its bank accounts. This company collapsed after weeks of constant DDoS attacks and transaction flexibility issues as it led the company to halt the withdrawals.
Bitcoins Also Face Regulation Issues:
As the Bitcoins are not specifically regulated therefore only China and Brazil are considered to have specific regulations that are applicable to Bitcoin use. Brazil enacted a Law No. 12,865 on October 9, 2013 and generated the prospects for normalization of mobile payments systems and also the creation of electronic currencies such as Bitcoin.
Under the constitution of Argentina, Central Bank is the only authority that is capable of issuing legal currency. Canada also does not possess any specific laws for the regulation of Bitcoin. According to an e-mailed statement to the Wall Street Journal in January 2014, Canadian officials stated that Canada does not consider Bitcoin to be authorized tender, only Canadian bank notes and coins are known as legal tender but the official also stated that the authorities would continue to monitor developments that implicate virtual currencies.
What Needs to Happen for Bitcoin to Replace Money?
Bitcoin must evolve into a more secure form in order to replace the traditional money. In order to grow, Bitcoin requires liaising with other forms of online payments and involve government in insurance policies for protection against theft. Society adapts to the changes gradually and a swift progress is possible only by showing the efforts of all the stake holders the benefits of the possibility of a single currency.
The growth of virtual currencies is expected to continue as it is triggered by the following factors
- The increasing access to use internet and the growing number of virtual community user,
- The rapid increase of electronic commerce,
- The lower transaction costs as compared to the traditional payment systems,
- Direct and faster clearing as well as settlements of transactions.
Regardless of how you feel about Bitcoin, it has the potential to improve money as we know it
It remains to be seen where and if Bitcoin finds a place in our world today. Bitcoin should be considered as a drastic innovation because it has the potential to revolutionize the financial sector and address shortcomings in the current system. It possesses the power to force the existing system to adapt and grow more efficient than it is today. Bitcoin is not any new form of money but it can lay the basis for potentially improving money as we know it.