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Value Of Digital Currency Essay

643 words - 3 pages

The benefits to using a digital currency like Bitcoin for transactions are based on it being independent from the government and central banks. Being in control of your own currency, its accessibility, security, and remaining virtually anonymous while using it are what give it value. For both parties, the information for transactions using Bitcoin is transparent. This transparency protects merchants from losses incurred via fraud, robbery, or NSF since the transaction cannot be reversed. Since it is a digital currency, which is community regulated, it inherently carries less fees in use and conversion.
The costs for using Bitcoin for transactions are ones which can be seen as opportunity costs. The volatility of its price and demand tend to stem from the current events that affect digital currencies. These events can reflect positively or negatively for its value in such instances as the Silk Road or foreign bank crisis & capital restrictions increasing ...view middle of the document...

With our daily lives being more inundated with e-commerce, it is only fitting that a currency emerges alongside the new economy.
I believe that Bitcoin, currently, cannot serve as a unit of account, medium of exchange, and store of value simultaneously. This is due primarily to its limited use with merchants and consumers globally. This lack of utilization and understanding limits its ability to serve as a unit of account since it is still being translated into the value of local currency. Bitcoin’s historically have not shown the ability to store value, as it has fluctuated wildly over the years. In my opinion, the largest reason that Bitcoin cannot currently stabilize in value is because it acts as the only independent alternative to banking currencies. Should a financial crisis occur, like in Cyprus, where the cost for financial independence is the current price of BTC, there is no telling what value it might climb to. It has already been demonstrated that Bitcoin can be successfully used as a medium of exchange. Once it is more widely accepted, I believe digital currency will easily be recognized as fulfilling as three criteria.

The value of Bitcoins relies in the confidence of its users of its security and anonymity, should that confidence disappear then we would find Bitcoins to be without intrinsic value. The issue with Bitcoin mining and storage is that there is only a fixed amount of Bitcoins available, making it a scarce resource. If through corporate mining the public distribution of Bitcoins becomes too tight then it will deflate the value of the currency and cause a recession in markets that primarily serve it. By not manipulating the protocols that govern its algorithm, the currency’s validity has remained constant despite its price fluctuations. Due to the large amount of computing power involved in the mining process, any change to the base functionality could cause a collapse of the whole monetary system. By increasing or decreasing the limit or generation of Bitcoins you affect all perceptions of its value in the present and future, while invalidating past assumptions. I believe since any change in its design now will likely result in its demise, it will remain untouched, so as to witness an experiment in new global currency.

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