The first reaction your author had when Bitcoin was announced back in 2009, “Wow, they finally managed to turn money into a P2P system.”
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While skeptics remain skeptical on the outlook of Bitcoin, there are merits to the core idea of Bitcoin. The idea that a unit of measurement to be recognized as a global currency is not an old idea.
The Main Differences Between Bitcoin versus Traditional Paper
Bitcoin unlike their traditional counterparts, had no prior protection or regulation by local governments. As such, Bitcoin is subject to large volatility changes whenever announcements are made. Developed nations announcing an outright ban on Bitcoin affects its market value. Traditional paper, however, are tuned to regulation from local authorities.
Bitcoin exists as data, in the hard drives of devices. Traditional paper exists as paper. The idea of encrypting money is not new; most developed nations provide online banking for moving of funds across institutions. However, strict rules and infrastructure are built upon such platforms to ensure adherence to the nation’s rules.
An important question, what are the keys to success of a currency?
Many articles have taken stands on either being an optimist or a pessimist. Most, however, do not address the fundamental cornerstone of ensuring success in currency.
Ben Bernanke was probably amongst the best to understand the continued success of the USD through the phrase, “In FED we trust.” Several people have made comments that Bitcoin is based off a “faith based” type of currency. They are forgetting that traditional paper itself is based on the exact same cornerstone. It has been proven in past years, despite regulatory actions, that traditional paper is subject to fluctuations and speculation. We have been through it. The Eurozone, The Russian Rubble collapse, the Thai devaluation. The current fluctuations on Bitcoin is simply a natural characteristic of a currency. Currency on steroids, that is. Traditional paper, while going through similar fluctuations, do so in bursts; not daily.
While the lack of regulation paves way to speculation and illegal uses, there exists a possibility of success in this idea. In order for it to work as a currency, Bitcoin needs, in the eyes of the user be able to deliver the following keys;
- Big user base
First, it needs to be recognized by several key nations in today’s developed world. Countries include mega economies, the USA, Japan, China, UK and Europe.
Second, the platform must deliver a high growth rate on user base. In your author’s past article, he argued that a social media company’s value is based off actively engaged users. Bitcoin has similarities as a “social wave” currency. In order for Bitcoin to realize its full potential, the number of users which accept, exchange and receive has to be as large as leading social media networks today.
Last, trust. There is no building block when there is a lack of trust. This includes traditional paper. The madness of the crowds has been observed when the trust of the Euro, Yen and USD was faltering. Bitcoin’s trust factor is no exception, it has and will continue to be a big issue which participants must address in order for Bitcoin to succeed.