As a netizen you have probably at least heard the term ‘bitcoin’. But what is it, and why do some experts believe that it could help save, or even prevent another, financial catastrophe like the one Greece is facing now?
The Dawn of Cryptocurrency
Although there were a few digital currencies before the advent of bitcoins, none of them had broken through the way bitcoin has. The idea for bitcoin was first published in an online paper in November 2008 by an unknown person using the pseudonym of Satashi Nakamoto. The idea behind the bitcoin was to create a peer-to-peer decentralized currency (meaning no bank held the power of creating value itself).
The first bitcoins appeared in 2009. By October of 2012 there were over 1,000 online merchants accepting bitcoins. In February of 2013 CoinBase (an exchange service that changes fiat currency- paper money regulated by governments- into bitcoins) reported selling US$1 million worth of bitcoins in a single month at over $22 per bitcoin. Later that year in April the Bitcoin was valued at $266 per bitcoin.
Under the system proposed by ‘Satashi Nakamoto’ bitcoins will continue to be produced for 120 years creating 21 million bitcoins.
However, since it’s inception, the bitcoin has had quite a rocky road. It has seen major crashes followed by relatively quick recoveries. Its all-time high was recorded on 17 November 2013 at $1216.73 per bitcoin.
Amazingly, the only major security fault was discovered less than a year after it started. Transactions weren’t properly verified before being recorded. This allowed a user to create an indefinite amount of bitcoins or spend the same bitcoin twice. In August of 2010 over 184 billion bitcoins were created in a transaction and sent to 2 addresses. The flaw was promptly addressed and the transaction erased.
Greece and the Bitcoin
As this article points out, although it is too late for citizens of Greece due to closed banks, ATM withdrawal, and overseas payments caps, it may be a viable option for other citizens that are part of a stumbling economy.
Many economists say that France, Italy, Spain, or Portugal may all be the next to follow in Greece’s footsteps.
In fact, bank deposits in Greece that have been a gradual slide, hit an 11-year low in late June. Whereas the UK’s Royal mint reported a doubling in bullion coins (those struck into precious metal) to Greek customers. Plus, BitStamp, a service similar to CoinBase, reported a 79% increase in sales to Greek customers in their 10-week average leading up to the Greek- Eurozone decision.
It’s also interesting to note that China based sales have spiked as well following the turmoil in their stock exchange.
Bitcoins would have been a good alternative to bail Greece out with. Because with the bitcoin once a purchase is verified it can’t be reversed, accounts can’t be frozen, and fees for doing business are much lower than what many countries and banks charge. It’s used to pay bills and can easily be converted into other currencies.
Greece’s finance minister, Yanis Varoufakis has even mentioned the possibility of creating a parallel bitcoin like currency to prop up countries like Greece (he uses layman’s terms to detail this plan in a blog post). But the chance for this to happen has long since passed. The country is already at the point of receiving a bailout.
Many people in the future may start looking for a work around for their government as they see the economy souring. Investing in Bitcoin is in no way a safe bet, but as J.D. Tuccille from Reason.com puts it;
But risk is relative—if you’re guaranteed losses because of official shenanigans, volatility in Bitcoin holdings might seem a better alternative.
Furthermore, buying bitcoins in order to convert your assets into a more stable currency, like dollars, would be a very effective solution as well.
Some countries are already beginning to feel the slide into digital currency. Argentina, for example, takes a healthy cut of any money coming into and out of the country. Although the overall population that is using the bitcoin is small there, even comparatively speaking, it’s one of the few places where regular people use the bitcoin on a daily basis. An interesting read about bitcoin and Argentina is here.
And if the rest of the world starts to go the same way as Denmark, abolishing printed and minted money altogether in favor of a highly controlled online exchange system, then bitcoins may be the only option for the average Joe. Denmark has one of the highest tax rates, as well as the highest rate of taxes increases. Making Danes want to do business increasingly off the books.
The change to the online only banking system will allow Denmark to better control taxes and make increases even easier.
There is no doubt that economic woes drive the sales of bitcoins. There is also no doubt that the bitcoin market is volatile. You could win big or have to hold out for quite a while to make your money back.
Moreover, as the market grows increasingly global, having a decentralized, peer-to-peer based currency is becoming increasingly appetizing. Especially in those countries like Denmark with remarkably high taxes, Argentina with remarkably high exchange taxes, and those countries in the Eurozone with remarkably unstable economies.
Bitcoins provide a way to move money outside a centralized banking system while still having a way to transact online. And isn’t that the direction the world is headed?
feature image courtesy of BTC Keychain via Flickr
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