By Giorgio Buttironi
Having attracting praise and criticism in equal measure, Bitcoin represents a genuine revolution in the field of financial transactions. Key figures in both public and private sectors, ranging from private entrepreneurs and financial analysts to governmental institutions, have released contrasting judgement on the digital currency. Therefore, it seems reasonable to ask: what is the real deal with Bitcoin?
Features of Bitcoin
Bitcoin could be regarded as having a double identity because – besides being the world’s first digital currency – it also consists of a peer-to-peer payment method which takes place directly between payer and payee. Transactions are verified through a decentralized computer network by programmers known as miners, with no banks or clearing houses acting as middlemen, and Bitcoin transfers between individual accounts require personalized digital signatures and ad hoc keys. The employment of cryptographic criteria to secure transactions, which are stored online with their distinctive identities and history, has brought analysts to define Bitcoin as a cryptocurrency.
Advantages and Benefits
There are of course many advantages to using Bitcoin as currency: firstly, with no banks in-between, transaction fees are infinitesimally lower than in standard payment methods; secondly, Bitcoins can be used almost everywhere in the world and can be often exchanged for real currencies such as Euros, US Dollars, GB Pounds, and Japanese Yens; thirdly, accounts cannot be frozen; and lastly, there are no charges or subscription fees for individuals or businesses who seek to start accepting Bitcoin as a form of payment.
Like every innovative concept, Bitcoin has provoked a deep division both among experts in the financial field and governmental institutions. And while some analysts have come out in praise of the digital currency, other figures have categorically cast firm judgements expressing their scepticism on its real value.
In a recent research paper, David Woo (Bank of America Merrill Lynch) endorsed Bitcoin as having potential to both become a primary payment method for e-commerce and compete against traditional money transfer alternatives. Additionally, bearing in mind the cryptographic requirements that provide each transaction with a unique and unalterable identification, Bitcoin would be impossible to use in the black market – Woo pointed out. Richard Branson, CEO of the Virgin Group, recently announced his company would start accepting Bitcoin as payment method for purchasing products.
For every pro, however, there are an equal number of cons and Bitcoin is certainly no exception. A major concern regards particularly the ease through which the innovative idea can be copied, thus generating various similar digital currencies thereby reducing Bitcoin’s value to a minimal low. Another financial analysts, Steven Englander of Citi Bank, claimed that Bitcoin’s benefits are quite easy to replicate and may ultimately lead to the emergence of similar competitors on the market; although there is some merit to this argument, only time can tell whether these fears will indeed materialize.
However, the most significant and recent blow to Bitcoin’s value on the marketplace came from the People’s Bank of China. The country’s central bank barred financial institutions from dealing with Bitcoins; although it did not forbid individuals from taking part in such transactions, the central bank was adamant in stating that they would have to bear any eventual negative repercussion. Since Bitcoin found a prosperous ground in China, it is easy to understand why this warning caused a profound upset in the digital currency’s value. Moreover, similar warnings were contemporarily issued by national banks in the Netherlands and France, especially with regards to Bitcoin’s “highly speculative” nature.
What is the real deal then?
Like every revolutionary development, Bitcoin has certainly succeeded in attracting its fair share of endorsements and criticisms in its infancy, considering it was introduced almost four years ago. However, we should not be afraid of new developments that – when used properly - might improve our everyday life for the better. Woo again pointed out that “Bitcoin may also help users avoid high taxes, capital controls, and confiscation”. A principal contentious issue with Bitcoin concerned its values vis-à-vis real currencies and specifically its fluctuations. According to Cameron and Tyler Winklevoss, two major endorsers of this development, Bitcoin’s exchange rate has the potential to rise up to $35,000 to 1 BTC. But one needs not look too far back, when banknotes were first introduced as an temporary and more convenient form of payment; the formula “I promise to pay the bearer on demand the sum of …” still appears on today’s Bank of England banknotes. A great many people – back then – probably preferred the intrinsic value of gold vis-à-vis a written promise of payment; but the intrinsic and logistic asset on banknotes, which allowed vast sums of money to be transferred more speedily from payer to payee, can somehow and with a significant stretch of imagination be spotted in Bitcoins nowadays. As with many things, only time will tell whether Bitcoin will succeed in becoming the most prominent payment method; nevertheless, despite the recent setbacks incurred by the digital currency, people should be careful not to dismiss it so easily. Bitcoin might still surprise the financial world in an unforeseen and radical fashion.