In this day and age, the concept of cryptocurrencies has been widely arguably discussed, adopted, and rejected in equal measure. Even so, technological advancement is seeing more people adopt to this awakening. Cryptocurrency is an encrypted, peer to peer network that facilitates ownership and transaction of virtual currency while operating independently of a bank. In simpler terms, cryptocurrency has enabled ownership of money online in virtual wallets that are accessible through the internet (Nakamoto, 2008). There are five common and widely known cryptocurrencies available which are Ethereum, Dash, Litecoin, Bitcoin, and Monero (Sovbetov, 2018). This paper will discuss in detail on the Bitcoin cryptocurrency, address on the clients of bitcoin, how bitcoin works, its advantages and disadvantages in today's economy, and its futuristic potential.
Bitcoin was first invented in 2008 by Satoshi Nakamoto. In Autopoulous' book on "Master Bitcoin: Unlocking Digital Cryptocurrencies," bitcoin is defined as the most common cryptocurrency that relies on collection concepts and technologies to form a digital cash system. Over the years, bitcoin has been adopted and embraced as an electronic cash system that allows for bitcoin clients to own, transact and save in virtual currency. As opposed to a monetary currency, which is printed by governments, stored in banks and deposited or withdrawn with the bank's consent, bitcoin allows for a direct transaction between two willing individuals without the central bank's interference (Bohme et al., 2015). Bitcoins are mined, which means that to generate a bitcoin unit where a complex calculation needs to be solved by sophisticated computers. Bitcoin regulations were designed by engineers without the influence of regulators or government. Bitcoin is a decentralized system. Bitcoins can only be generated by coders, software engineers or computer gurus by creating software and applications for making bitcoins like ASIC, and GPU (Antonopoulos, 2014). They would be doing this in an attempt to make money and sell the bitcoins (self-interest) and unknowingly advancing society through technology hence satisfying Adam Smith's concept of Invisible Hand/Self-Interest. They have the advantage of having intellectual information and complex computers to do so (Kennedy, 2009).
Bitcoin clients can be divided into three types, that is full clients, light clients, and web clients. Full clients can initiate transactions directly on the bitcoin network and can store a user's virtual wallets (Nakamoto, 2008). Light clients need third party owned servers to perform bitcoin transaction, but they can store a user's virtual wallets. Web clients can store user's wallets on third-party servers, and they can only access the bitcoin network in a web browser. Bitcoin clients can be anybody who has adopted this cash system and is using it in trade for products or services (Antonopoulos, 2014). This type of electronic cash system is a want, and it has been majorly embraced in developed countries like United States of America, Japan, China, but rejected in developing countries especially in Africa where ironically, the monetary currency is volatile and weak. Most people rejecting cryptocurrency are less educated on such technological advancement, and they fear the unknown. African countries are laggards in the adoption theory, and still in this era, some of their adoptions are dictated by traditionalism hence they are skeptical about electronic cryptocurrency (Dalington III, 2014).
Bitcoin utilizes three factors of production, which are labor, capital, and entrepreneurship. Entrepreneurship is utilized through business, trade, and investments via the bitcoin network. Bitcoin has promoted and eased global trade because the system is not affected by exchange rates, government taxes. Capital is utilized in the form of technology whereby software engineers, coders, computer programmers work to developing software and technological applications that can generate more bitcoin units. They do this by laboring themselves or hiring hence utilizing labor. However, they do this in pursuit of their selfish interests. Mining of bitcoin units is not desirable. Heavy mining could eventually lead to the collapse of this cash system. Land, as a factor of production, is not a necessity in bitcoin transactions.
Bitcoin is more secure than the renowned banking system of monetary currency. Bitcoin transactions are direct as opposed to banking transactions. Bitcoin accounts can be created by any willing person, without charge, without the common vetting process and without giving correct details on the name of the person hence enhancing anonymity and privacy for the holder. As time goes by, more people are adopting cryptocurrency as a safer and easier cash system (Antonopoulos, 2014). They forgo the banking system of monetary currency, therefore, creating an opportunity cost. Money is always scarce in supply (unless during inflation), which therefore increases its value and creates the need for choice on the preferable cash system. Consumers would opt to choose bitcoin due to its unending advantages. Bitcoin is not affected by exchange rates or hyperinflation. By using bitcoin, the bitcoin account holder gets to primarily track his account and transactions as opposed to having to trust banks or insurance companies to be in charge of your monetary information. When people opt to use bitcoin as the cash system, the monetary and banking system will be forgone therefore it will be the opportunity cost.
Bitcoin does have its advantages and disadvantages that enhance or deny its viability for the future. Bitcoin transactions are irreversible (Bohme et al., 2015). Sending bitcoins to the wrong party would be irredeemable unless the party honestly agrees to send them back. Mining of bitcoins is becoming easier with the advancement in technology, which will hurt the cash system in the sense that people might find easier to mine than to transact in fair trade. Bitcoin currency thrives on not being easy to generate. If mining, becomes easier, bitcoin is going to be produced in surplus and lose value, therefore losing credibility. Another disadvantage is that bitcoins can be depleted. Just like gold, heavy mining of bitcoins can lead to depletion whereby no more bitcoins can be mined and, therefore, an increase in the number of bitcoin holders will create scarcity for bitcoins. Even so, bitcoin currency is accessible through mobile phones, the system is secure, therefore, preventing fraud or counterfeiting, is not affected by hyperinflation or exchange rates, and it has opened more opportunities for global trade. Bitcoin account holders can operate their accounts through Short Messages Service or mobile applications. Bitcoin would be advantageous to people in developing or underdeveloped countries where the currency is weak or inflated, corruption is high, the economy is weak, and banking not readily accessible (Darlington III, 2014). Bitcoin currency is here to stay, and as technology keeps on advancing, more people will adopt cryptocurrency as their preferred cash system. Bitcoin's growth is slow within the global market but worthwhile.
Antonopoulos, Andreas M. Mastering Bitcoin: unlocking digital cryptocurrencies. " O'Reilly Media, Inc.," 2014.
Bohme, Rainer, et al. "Bitcoin: Economics, technology, and governance." Journal of Economic Perspectives 29.2 (2015): 213-318.
Darlington III, James K. "The future of Bitcoin: mapping the global adoption of the world's largest cryptocurrency through benefit analysis." (2014).
Kennedy, Gavin. "Adam Smith and the invisible hand: From metaphor to myth." Econ Journal Watch 6.2 (2009): 239.
Nakamoto, Satoshi. "Bitcoin: A peer-to-peer electronic cash system." (2008).
Sovbetov, Yhlas. "Factors influencing cryptocurrency prices: Evidence from bitcoin, ethereum, dash, litcoin, and monero." Journal of Economics and Financial Analysis 2.2 (2018): 1-27.
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Research Paper on Cryptocurrency: The Digital Money Revolution of Our Time. (2023, Feb 12). Retrieved from https://proessays.net/essays/research-paper-on-cryptocurrency-the-digital-money-revolution-of-our-time
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