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Essay Example: Economic Implication of Bitcoin

2021-07-27 08:11:37
6 pages
1425 words
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Sewanee University of the South
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Essay
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Over the years, the blockchain technology has remarkably changed the money market and the manner in which people think about money in general. With the ultimate goal of attaining escape velocity and anonymity, the crypto currency has successfully enabled the operation of digitalized currency. With close to ten years of existence, Bitcoin has taken the world by a storm portraying a wide adoption rate mostly based on its anonymity in digital transfer of cash (Gaikwad, 2017). This shows a significant stance in the milestone to achieving full anonymity value transfer. In this respect, Bitcoin has hugely impacted on various economic parameters including demand and supply of money, fiscal policies, taxes and investment among others. Further, owing to the huge returns experienced over the years, Bitcoin has been widely accepted as a fundamental means of storing value. More importantly, the anonymity of Bitcoin allows its users to trade freely with no influence of interest rates and government regulations.

Looking back in history, physical money is a legal means by which people store and exchange value (Gaikwad, 2017). This has been however subject to key challenges that everyone has been forced to cope. For instance, it is quite clear that the government has had the power to radically influence the demand and supply of money by imposing the different form of regulatory, monetary measures. Further, the tradition of taxes and interest rates has hugely contributed to the manner in which people choose to store value. For this reason, different states have primarily had the chance to get wealth from the people and financial entities. This seems to be changing as Bitcoin has for once enabled its holders to legally resist the idea of taxation and other entitlements of the government and various financial institutions (Joshua Baron, 2015). It becomes virtually important to understand that the fact that Bitcoin has nothing to do with money in the actual sense makes it a far preferred means of economic power. Far from being a better form of money, Bitcoin is showing tremendous pace in its acceptability which may make it a very valuable asset. In this respect, economical facets related to consumption of goods and services, production and trade have been significantly impacted as trading does not have to primarily be done in the involvement of third-party trustees such as the government and the central banks (Nicholas Christin, 2015). This has posed a huge challenge to the traditional means of trade since the use of Bitcoin has increasingly hindered the government from directly tracking transactions made between people. In this regard, many governments from different states across the world have been seen to be resilient in the adoption and acceptance of Bitcoin as a means of trade.

The economic impact of Bitcoin further poses a challenge to monetary policies concerning the supply of money, inflation and interest rates among others. With the huge adoption of Bitcoin as a trading method, Bitcoin has tremendously gained stance as one of the very convenient and safe means of handling and storing wealth with little or no worry of inflation (Gaikwad, 2017). With digital currency, common factors that affect the strength and purchasing power of different currencies becomes avoidable, and a couple of economic factors such as tax rates do not hold. It is for this reason that Bitcoin holds a lot potential in fund transfer by investors, businesspeople, and merchants who fear restriction of borders and regional limits. The fact that other currencies are very reliant on the liquidity of the central bank and are further subject to leverage from government and private financial institutions makes Bitcoin a preferable trade method (Rice, 2013). This is for the reason that businesspeople and investors are always seeking for more stable and less risky means of investing.

One key factor that has significantly led to an impact on the economy is the security and anonymity tied to the use of Bitcoin both as a method of trade and also as a store of value. Owing to its trade history and trends ever since it was in existence, Bitcoin has posed as an uncontrolled and unregulated form of currency that greatly serves the interest of many investors, merchants and traders. These interests are however advantageous to traders and users by its anonymity which makes avoidance of interest rates possible. For instance, at around 2015, just six years after its introduction, a total of 14.2 million Bitcoin were already in circulation. This was to a tune of $3.5 billion worth of market capitalization. This has increased enormously as recent studies indicate a total of 110,000 unique Bitcoin transactions in a day (Gaikwad, 2017). In respect to economic facets of the time value of money and interest rates, the tremendous adoption of the use of Bitcoin shows a possible loss of significant amounts to governments and financial institutions regarding interest rates that would have rather be realized in the use of physical currencies. For this reason, it the widespread use and acceptability of the digital currency seems to be less advantageous to the government and other financial controllers (NicholasChristin, 2015). This can further be acknowledged by governments resilience in adopting and embracing the use of Bitcoin as a legal means of trade.

Further, from an ideological standpoint, the use and adoption of Bitcoin happen to be a shift of financial power to the people with less interference from the government and the banking cartels. Fundamentally, the immunity of Bitcoin from the state control foster an economic implication that digital currency could be the ultimate means of holding value and transacting. For this reason, a fundamental economic power seems to be slowly gaining stance whereby key players in the economic arena seem to prefer less controllable and more flexible means of trade due to the fewer risks that come with it (Manheim, 2015). With this, the global economy is certainly taking shape in a dimension that seeks to bring economic independence that is fully beyond the control of the state and central banks. The new economic power imposed by the use of Bitcoin is further seen to slowly enact a huge distinction between politics and economic power as the digital currency has ensured economic freedom and global liberties.

Also, the wide use of Bitcoin has enhanced capital efficiency based on its ease of maintaining and utilizing the currency. This greatly impacts the global economy on the scales of security. Based on the idea that currencies should bear ideal levels of security, Bitcoin has greatly achieved security by enacting secure cryptographic systems in place. The functionality of digital currency adequately employs more efficient and scalable means of transacting as opposed to physical currencies (Rice, 2013). Further, digital currencies are ideally less prone to key security concerns such as counterfeiting, note destruction and physical theft among other factors. Nevertheless, the adoption of digital currency greatly steers the global economic environment to the much anticipated cashless modes of transaction that happens to be more scalable and secure. This takes into account the very fundamental facet of money that reduces a lot of risks that come with handling physical money. By this, Bitcoin surpasses the economic vulnerability that comes with the use of hard currency by allowing for a much secure and efficient means of exchange and wealth storage.

Conclusively, it is important to acknowledge that digital currency happens to be very promising in a lot of respects and should thereby be embraced in all efforts. Based on the basic factor of the money supply, the use of Bitcoin is gradually creating a healthy global economic competition whose advantages are way over the use of physical currencies. One of the very key ideal falls on the fact that digital currencies can hardly be inflated at will. For this reason, the supply of digital currency becomes difficult to change as the demand for Bitcoin is increasingly on the rise every other day. Also, the fact that Bitcoin finds its worth purely on the nature of its value makes it a less risky mode of storing wealth as opposed to physical currency whose value varies due to its bond with the state legal codes and other forces. This makes digital currency more economically efficient and ultimately the way to go.

 

REFERENCES:

Gaikwad, R. (2017). Bitcoins-Its Economic Impact. Academia.edu.

Joshua Baron, A. O. (2015). National Security Implications of Virtual Currency. The Current State of Virtual Currencies, 5-19.

Manheim, D. (2015). National security implication of virtual currency. Implication beyond currency, 59-66.

Nicholas Christin, T. M. (2015). Economics, technology and governance. The Journal of Economic Pespective, 213-238.

Rice, D. T. (2013). The pasta and future of bitcoins in worldwide commerce. Business Law today, 1-4.

 

 

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