Bitcoin: The Future Of Money

Mudasir Sheikh
April 2, 2017 OPINION 1582 Views

From prehistoric times money primarily functioned as a medium of exchange and store of value. But as humans evolve, so has the money gone through five stages of evolution from commodity money, metallic money, paper money, bank money and finally to crypto currency. The metallic money usually in the form of gold and silver coins has successfully performed all the function of money throughout the ages, initially in the form of direct metal coins until gold backed paper money. As these precious metals have intrinsic value they were inflation proof and hard to manipulate for personal gains. But it was very unfortunate for human race that real money with intrinsic value was completely abandoned in 1971 after the collapse of Bretton Woods’s agreement. Most well-known economists today consider the international financial system a broken entity and thus needs immediate reforms. But debate regarding proposing solutions is reckless and rarely enlightening. The proposed solutions include belt tightening, taxing the rich, quantative easing etc. But all these solutions are missing one main point i.e. money. The currency which is the blood line of an economy, we have taken its existence for granted. The modern fiat currency is simply a debt created by bankers and is the very root cause of every major economic problem. In order to eradicate the inherent faults of paper currency and to bypass central banking some mathematicians, computer programmers and cryptologists along with economists are working hard in order to establish a just and fair mode of transaction in an economy. Some among them have proposed a solution in the form of crypto currency with its well-known representative, Bitcoin.
At its basic level bitcoin is a digital file or ledger, which contains names and balances of different individuals, which are exchanging money between them by exchanging this file. Bitcoin was proposed by an anonymous programmer or group of programmers under the name, Satoshi Nakamoto on 31 October, 2008 after subprime crisis and finally released as open source software in 2009. Bit Coin uses a peer to peer network and transactions are recorded in a public ledger known as block chain. Through this block chain cryptography only 21 million bit coins will be generated till 2031. After that in order to sustain the system for increasing demand of Bitcoins, these Bitcoins can be broken down in to smaller units known as Satoshi, as the higher denomination of paper currency are converted in lower denominations. A single Bitcoin is equal to108 Satoshi. The generation of Bitcoins will be completed in four stages. In each stage there are 2.1 lakh data blocks, which miners have to solve in order to generate Bitcoins.But rewards will decrease from first stage of 2.1 lakh data blocks till the fourth stage. On solving first 2.1 lakh data blocks, miners will be rewarded with 50 Bitcoins per block, followed by 25, 12.5 and 6.25 Bitcoins per data block for second, third and fourth stage respectively. These data blocks are solved by open source software which can be downloaded from web on any computer. The rate at which these data blocks are solved by computer is measured in hash rate per second. A normal laptop computer can provide a speed of 30 kilo hash per second. At this speed only 0.003 Bitcoins will be generated in 24 hours of mining process. As this speed is very low so miner’s create a very powerful computer by connecting together number of computers or by using graphics cards, in order to form a mining rig. Once these Bitcoins are generated these can be circulated in a system by installing an e-wallet software on a computer. Sending Bitcoins through this e-wallet software is as simple as sending an email. Anyone can acquire these Bitcoins by three methods. First one is by mining them as discussed above. In second method individuals can provides goods and services for bit coins. Third method involves direct exchange of your paper money with Bitcoins. There are various websites which exchange bit coins for paper money. The value of a single Bitcoin is $1084.12 in March 2017. Bitcoin has seen extreme fluctuations in their value from $200 in October 2013, $1200 in December 2013 and $230 in February 2015.
There are various pizza parlors, fashion stores, IT professionals and various online stores which are accepting Bitcoins as a mode of payment for their services. As Indian government is moving towards digitalization of currency, it can be said that in near future, Bitcoin or any other crypto currency may officially be introduced by government of India. The Indian finance ministry in December, 2016 formulated a committee known as Watal committee for studying digital payment and block chain technology. As they mentioned in their statement that digital currency is cost efficient for government, there will be more tax vigilance and is resistant to counterfeiting. Recently in 2017 RBI’S institute for Development and Research in Banking Technology (IDRBT), issued a white paper and pilot tests for block chain technology. So we may see digital currency in circulation, sooner than we expect.
But Bitcoin is not without limitations, as it is only a mere digital code has no intrinsic value and is not backed by gold, silver or anything tangible. Who knows what will be the future of currency, but majority of experts in economics believe that only a currency with intrinsic value will be ultimate fate. As Ayn Rand has said “you can ignore reality, but you can’t ignore consequences of ignoring reality”
Writer is MBA, M.PHILL ,

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