Bit Coin – The rise of an International Currency?

I have always wondered why we have so many currencies in the world. Could there be a way to have a universal currency? And it seems I got that answer when I got to know about the ‘BitCoins'. But wait, can we consider Bitcoin ‘money'. Does it have characteristics required to qualify it as money? Well, let’s examine them.

The primary characteristic of the money is that it should be acceptable to barter for goods of my use. Sure, Bitcoin is acceptable in the digital world and also in a small part of the physical world. But so is, Gold, which we don’t consider a currency, but only a commodity.

The second characteristic of money is that it should be rare to produce and easier to identify in a transactional system. Bitcoin passes this test, but not gold, the value of which can only be assessed on careful, time-consuming, and also expensive examination.

The third characteristic of money is that it should be divisible in smaller denominations to be used as a medium of exchange for goods and services. Bitcoin passes this test as well because it can be transacted in lower denominations namely satoshi (one billionth of a bitcoin), microbitcoin (µBTC), and millibitcoin (mBTC).

So, now can we say that bit coin can be qualified as a currency? Not exactly. Because there are questions about the stability of the Bitcoin as a currency. In last five years, the value of Bitcoin has gone up from $1 to $1230 before going back to $164, at its lowest price since then. In last one week itself, it has appreciated by 20%. Because of limited acceptability and regulatory uncertainties emanating from various government statements, Bitcoin has seen a sinusoidal appreciation and depreciation in its value.

Many critics of Bitcoin say that physical currency has some underlying asset, which might not be entirely correct. When US Government started the quantitative easing to bring its economy back on rail, it was nothing but updating the numbers in the treasury database, giving us an impression of more money in the system. There was no underlying physical asset, the only asset this new money was based on was the trust in the US Government and its ability to run the economy. In the case of Bitcoin, although there is no government trust in the backing, there is a distributed blockchain ledger system based on a secure, decentralized, cryptographic solution.

Now let’s talk about how what kind of problems Bitcoin solve. First of them, beat national inflations. Because of its global value discovery mechanism, Bitcoin wouldn’t be as affected by the local issues of any country as would be the local currency.

So in a nutshell, although acceptability and regulatory reasons are the biggest uncertainties around Bitcoins, its growing network and potential to solve real world problems has been encouraging for its proponents. Therefore, with a great potential, Bitcoin has a long way to go before it could become first universal digital currency.