Silkroad! Bitcoin! Virtual Currency! Underground Market! What are these things? What makes Bitcoins to reach overwhelming popularity. Though this is an SEO related blog, (out of curiosity)Bitcoins drove me to write an article about its working process. Lately, we’ve been living crazy with Bitcoin, the most famous virtual currency. Now we explain how it worked for some time, both economically and technically.
Economics behind the Bitcoin P2P Virtual Currency
Importance to Currency –>An inevitable one. This new Bitcoin (virtual currency) has received a great importance all over the world. On 1 November, a Bitcoin was trading for about $ 210. Recently, the price closed at $ 792 and got to touch the $ 900 per Bitcoin. A 300% viral growth, in less than a month is an amazing performance. Especially, since there is no reason this has caused has been isolated. In fact in 2012 the currency was more appreciated against the dollar and that gives importance. But what is a coin? Is it feasible virtual currency?
What the hell is going on these days with Bitcoin? Let’s explore the economics running behind it…
Now, we begin a special on this new virtual currency, that may (or may not) change everything in the world economy. Let us focus on the economic aspects.
Bitcoin is purely virtual, since no physical notes or coins with pay. Bitcoin is stored on our computer and we can spend this money in online shopping at the moment. Here, the most surprising thing about a Bitcoin is, it jumps into the physical world through credit card payments from your mobile.
Is it anything like Currency?
When, the news about Bitcoins has risen up, the question initiated from the people: why do we need a new currency? It’s certainly not because it is virtual.
Dollars, Euros and all other currencies are generally traditional and virtual can be used (by credit cards, for example). In fact, the amount of money in circulation virtually is far superior to paper tickets in circulation. In the end, the money you have is just a number in a database of their bank.
So why Bitcoin arises? Bitcoin creates currency scarcity :at the core of its design. The number of Bitcoins in circulation can not grow arbitrarily. The design is quite complicated math to provide security to this aspect, and of this we shall speak in new entries. But the main thing now is to make a leap of faith and consider that the number of Bitcoins will grow at a controlled rate. sufficient to absorb the new users of the currency.
The good thing about this model is that there is no external interference, or anything similar to bailouts. Our savings are safe as Bitcoins. Never can a politician establish a monetary policy and decide that savers must pay part of their savings to save heavily indebted people.
And this is in the system design, i.e. not talking to prohibit by law interfere with the currency (which it already does now, so the central banks are relatively separate from political power) and that laws can be changed and decisions of supposedly independent institutions can be influenced.
So with Bitcoins, we have a currency that is explicitly designed to be small , the first condition to be a coin or currency. But remember that there is a second requirement, which is to be accepted by society. And that’s the point where we are.
Is it good to invest in Bitcoin?
Could we be facing a Bitcoin bubble? Probably. For example, in 2011 the value of a bitcoin went from $ 1 to $ 30 in just two months. Then this value gradually fell back to $ 2.Today is $ 13.70. It is a great investment for the one who bought at the peak of the ridge, of course.
Still, the only reason you can succeed Bitcoin is precisely because of its scarcity by design. In the economic environment in which we can find the coin to be a safe haven for savers who do not want lose their savings as bad political decisions.
Now, also have their enemies. If this starts to be relevant currency, could jeopardize political-economic structures of the world. And therefore could be declared illegal, simply because States does not want to lose control of the currency, a fundamental tool to manipulate (in a good way) the economy.
And do not forget that being a P2P currency transactions do not have to go through any bank. This means it is very easy to make economic transactions without ever being reported and therefore untaxed . This is very dangerous for States. Without taxes there are no public services or infrastructure and pensions as we know them.
So, see, complicated to succeed. First because it is difficult to be accepted in society, unless they lose faith in their traditional currencies (could happen if there is high inflation). And second, because it would have much power against him if he started to have some success. But stranger things have happened.