Explaining the meaning and the purpose of the digital currency bitcoin has lead to defining its level of 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 the economic standpoint, it is a classified 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 currency such as euro a reward without fundamental value whose procedure is imposed on their users, there is an open question what actually digital currency is and what is it used for.
The easiest way to explain it is to observe euro as a coupon in the monetary sector in which the euro has legal tender. A banknote is a holder’s declare 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. It shares are not being backed by a material asset, since 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 towards the monetary exchange purpose than to be a tool for accumulating value, even though its deflationary character can theoretically guide to that.
While alternative currency applications are generally distinct by a very strong constructivism or by the necessity of force to enforce a new conception, bitcoin is a merely individual project which 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 show 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 by the rapidity of transfers and the safety of the new currency.
As a result, the bitcoin sustained to grow to the point of declaring itself as the financial asset with the best annual performance in all currencies during 2016. The 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 growing number of central banks. The reason of its immunity to this it is written in its algorithm of operation (not modifiable) that there will never be more Of 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 in order to start new business and helping 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