Explaining the meaning and the purpose of the digital currency bitcoin has led to defining its level in comparison with the existing monetary system or the position of leading central banks, where many people think that a country is sovereign and that if it has contracted a debt in a currency, it is free to reimburse it in another country it chooses.

Since Bitcoin was not created by banks, it does not depend on any state, and it is also not linked to any specific currency. Therefore, it is not tied to a specific central bank. Bitcoin is interchangeable with dollars, euros, or any other major currency. From an economic standpoint, it is classified as a currency that is not issued by a bank and is not linked to a currency agreement. Besides that, it does not have a monetary policy.

If we consider a currency such as the euro as a reward without fundamental value, whose procedure is imposed on its users, there is an open question about what digital currency actually is and what it is used for. The easiest way to explain it is to observe the euro as a coupon in the monetary sector in which the euro has legal tender. A banknote is a holder’s declaration valid in any country where it is in the payment system, and it represents a means of payment without inherent value, valid in a large geographical area.

Bitcoin is not a commodity money, nor a fiat currency since it has no required price. Its shares are not backed by a material asset, as it has value only because economic actors agree to use it in cases where the internet facilitates exchanges between them. There is no need for great thoughts to look forward to the effects of such guidelines. It is oriented more toward the monetary exchange purpose than to be a tool for accumulating value, even though its deflationary character can theoretically lead to that.

While alternative currency applications are generally distinct by very strong constructivism or by the necessity of force to enforce a new conception, Bitcoin is merely an individual project that aims to rise above private initiatives. A restricted amount of a valuable supply whose worth cannot be affected by state assessments shows that this is an example of something that can be called digital gold because the volume of the user base is increasing, which shows the way to a price increase.

Besides that, the profile of buyers is widening too, so it is no longer reserved only for experts in the digital world, assuring users of the rapidity of transfers and the safety of the new currency. As a result, Bitcoin sustained its growth to the point of declaring itself as the financial asset with the best annual performance in all currencies during 2016. Bitcoin reacts like an asylum since younger generations do not believe in gold as their parents do, and in emerging markets, in particular, this cryptocurrency becomes the investment to refer to, whereas it is much easier to use than gold.

This digital currency is resistant to money laundering, which is the catching disease of a growing number of central banks. The reason for its immunity to this is written in its algorithm of operation (not modifiable) that there will never be more than 21 million bitcoins in circulation. Some of them have already earned enormous gains, while we continue to settle for a few percent per year. As one can imagine, such an increase has made some people extremely wealthy, but for once, it was not a handful of bankers. The funds could be generated to start a new businesses and help others in the transition to this new form of savings and banking.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018