Since the financial crises, politicians and economists have
been calling for a change to our economic system. Some even suggest getting rid
of the Federal Reserve and returning to the gold standard for more stability.
If stability is the issue, why not switch to a currency that can regulate
itself? Bitcoin, created in 2009, is the worlds “first decentralized digital
currency.” In theory, Bitcoin seems perfect; Through a set of complicated algorithms, it is controlled against
theft, counterfeiting, and inflation. In practice, could a concept like Bitcoin perform as well as it's designed?
Although this article focuses
specifically on the Bitcoin and the concept of a digital currency, it brings up
a lot of great questions as to where our economy, and the world economy are
headed. With a currency that can regulate itself, what’s going to happen to
regulatory institutions like the Fed? How would a decentralized currency affect
politics?
http://business.time.com/2011/06/29/bitcoins-does-an-internet-currency-mean-the-doom-of-the-dollar/
http://www.economist.com/node/18836780
How Bitcoin works:
http://www.economist.com/blogs/babbage/2011/06/virtual-currency
http://www.weusecoins.com/
6 comments:
Despite the multitude of advantages offered by a currency whose value isn't tied to a single nation's economic situation or government, I don't think any such thing will be widely adopted any time soon. With the risk of the value the currency dropping as drastically as it did when $9 million were stolen, I think most would be hesitant to invest.
I think that depends on what defines soon; Our economic systems have been evolving as we evolve. With the exponential growth of technology, our society is changing faster than it ever has before. We're a far more globalized community now and our current economy policies are going to make it difficult for us to adapt to those changes. I don't necessarily think Bitcoin is exactly where we're headed, but I do believe decentralized digital currencies are very possible.
I'm going to have to agree with Christina on this. We may not recieve something in this nature in the net twenty years however we are definitely headed in that direction. Our currency form has changed dramatically through the years and we are definitly going towards a non-paper currency, plastic has already begun replacing cash.
As stated in this article, Bitcoin is a perfect digital currency that is controlled against theft, counterfeiting, and inflation. However, as mentioned later in the article, could the concept of Bitcoin performs as well as its design? What will be the support of the digital currency? What organization will regulate the digital currency? What lies before the implement of digital currency is how to develop the concept into a more practical way.
I do agree that we are, as a society, moving towards a total paperless economy. In Dr. Simon's monetary and fiscal policy class we are constantly reiterating that fact, and it's something I agree with. Using a debit card is a whole lot easier than carrying cash with you everywhere you go, and the next step is to have an economy run on EFT's (Electronic Funds Transfers). Bitcoin might be a step in the right direction but I think the leap is a bit too far. It would be nice if we could finally transcend into a fully electronic economy, but it will take some time.
I agree that just because it's a great idea in theory doesn't mean it will be in practice, but as for the last two questions, I believe they're answered in the article. Bitcoin is able to regulate itself through a set of algorithms, and to be considered money, it doesn't necessarily need to be supported by anything. "Money is a matter of functions four, a medium, a measure, a standard, a store;" Bitcoin seems to satisfy all of these conditions. However, whether or not it will catch on as an acceptable medium of exchange is definitely still an issue.
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