Will Bitcoin Facilitate Our Transactions?

BitcoinBitcoin, the digital currency, whose creation is based on open source encryption, was designed to prevent counterfeiting and have an electronic payment platform, which isn’t regulated by any central government. Unlike real-world paper currencies, the supply of bitcoins increases relatively slowly depending on the rate generated by computers, which leads to a tremendous rise in value. We asked our Zintro experts whether they think Bitcoin will increase purchasing power and become an alternative to the gold standard.

Scott Urban, an expert in currency valuation and macroeconomics, is fascinated by Bitcoin’s potential to expand the money supply. “Most of the commentary on Bitcoin centers on its in-built scarcity, which is meant to ensure its value rather like the inelastic supply of gold was meant to confer value on paper money under the gold standard. If Bitcoin retains its enthusiastic user base, I can envision the need for maturity-transformation,” he explains. “People will begin to lend in Bitcoins, but they won’t be the original ones, they will be ‘synthetic’ Bitcoins, which will be issued up to a pre-pledged maximum amount of the issuer’s actual Bitcoin holdings.” As Urban further points out, whenever we take out a Bitcoin loan, we will be receiving a deposit of  synthetic Bitcoins. “In the real world, we do this all the time with the money we use in the economy. When we receive funds in the form of a loan, those funds aren’t the money created by the Federal Reserve, they’re created by the bank who wrote us the loan. The whole thing works because we proceed as if the two types of money are indistinguishable. As it happens, the advanced economies today face shrinkage in the overall money supply even though the central banks are expanding the kinds of money they can create,” he adds. “There is shrinkage because most of the money utilized in the economy is not the kind created by central banks. Since I believe that economies respond poorly to this shrinkage in the money supply, I’m intrigued by the idea that Bitcoin might actually boost monetary liquidity.”

As lead analyst, Kabir Ahmad indicates, Bitcoin is relatively new as a digital currency and growing hand-to-hand with virtual goods as well as the consumption growth in entertainment content. “The trend indicates that this would be sort of the gold standard in digital space in the coming 5 years but won’t replace the traditional gold standard or paper currency at all. Since the psychical value will be exchanged with paper money, it’s no more than paper money circulating in different forms in the virtual world,” notes Ahmad. “So very hard to claim that it’s going to increase citizens’ purchasing power, I would rather say that it might lead to a citizen’s loss of control over his own expenses, which can eventually create an ecosystem imbalance between money supply and money flow in the economy.”

According to Harry van Beuningen, an expert in futures trading, Bitcoin is in its infancy, therefore it will be difficult to predict its usefulness. “It does not have much depth, which is the reason why the price has fluctuated so wildly. It is presently not easily convertible to other currencies or useable for the vast majority of purchases,” says Beuningen. “Perhaps, given some time, 5 years or so, it might become an alternative to gold, but will it supplant the dollar? Unlikely.”

By Idil Kan

 

 

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