Digital currencies in general and specifically Bitcoin may not be the biggest news from the perspective of modern technology but it does carry the potential of becoming so in the next few years. It is on this basis that Bitcoin has been selected as the targeted technology for the instant assignment. Stating that the Bitcoin is the internet of money is not only a reality but also a euphemism since bitcoin has the capacity to change monetary transaction in the same way that the internet changed communication. Traditionally, technology-based communication was predicted on hubs owned by the entity . Communication between individuals using gadgets had to happen within respective hubs or through connections made between two or more such hubs. The internet eliminated the hub making it possible for any two internet-enabled devices to communicate directly thus changing the world. That change may pale in significance when compared to the change that Bitcoin and blockchain are about to bring to the world. The modern monetary system is based on hubs which are either central banks or organizations such as PayPal. Bitcoin has created an opportunity to eliminate these middlemen so that individuals can transact anywhere in the world without control or superintendence from any hubs. The same has a very high potential to change the world exponentially and in the very near future.
Importance of Bitcoin in the Future of Financial Transactions
Digital currencies, led by Bitcoin might never become the main form of currency in the near future or at all, but they are bound to have a significant impact on the future of global finance. To understand the concept better, the internet has not taken over all digital communication but almost all forms of communication today have a direct or indirect connection or interaction with the internet. For example, many phones, TVs, and radios get their signals through the internet and those that do not use the internet to advertise. According to Valente, Atkinson, and Clifford (2018), there are more than enough reasons why Bitcoin would be a preferred mode of financial transactions globally. Among the primary reasons indicated is the manifest distrust between populaces around the world and their respective governments. This ground is more pertinent in the current times when the world is on the verge of an economic war, pioneered by the US government. Coffee farmers in East Africa, for example, only want money for their products but their markets are limited by government policy. The same is about to happen to the global car, alcohol, fruit, and meat markets as the trade wars escalate. The world will be looking to extricate commerce from politics and Bitcoin is among the ways of attaining the freedom. The concept of globalism entails inter alia individuals from across the world being able to transact with one another at will and to their respective benefits. However, this concept has had a severe pecuniary limitation based primarily on finances. Governments have a firm control over who can trade with who based on non-commerce related considerations such as geopolitics. Any efforts to extricate commerce from governmental control has failed because governments control money . Bitcoin, however, provides an avenue for the extrication of finance from governmental control hence making globalized trade a reality.
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Secondly, Bitcoin eliminates the proverbial middleman in local and international trade. The term middleman as used in the instant perspective represents any third entity who has to be involved in a transaction but is not a principal within the transaction. For example, in a private international transaction, if there is a need to involve any government, then the government represents a middleman. Similarly, in a large transaction, the bankers, security consultants, and lawyers that have to be involved to safeguard parties are also middlemen. These middlemen have become necessary inter alia due to the need for due diligence in transactions and also for issues such as taxes and crime-prevention. Whatever the middleman such as banks, lawyers, and governments are needed for, their effect is wastage of time and money for the two parties undertaking a transaction. Bitcoin eliminates the need for due diligence due to the blockchain concept hence enabling faster transactions with less secondary expenditures (Valente, Atkinson, and Clifford, 2018). Eliminating the middleman does not mean lack of accountability in bitcoin usage but the exact opposite. The blockchain has provided a system where all cryptocurrencies leave discernible digital footprints available to all digital currency users. Currently, the world has become sensitive about issues such as human rights, violence, and environmental conservation. Just as people avoid buying from companies with a poor track record, it is also possible to avoid money that has been used for negative things through blockchain-based due diligence. One, however, has to wonder why with all these positive attributes, Bitcoin has not yet taken over the world 8 years after it was launched and also with the modern high proliferation of the internet. According to Valente, Atkinson, and Clifford (2018), Bitcoin has not yet had the kind of impact its merit deserves because it also has several demerits. If these demerits would be resolved, Bitcoins would be unstoppable as a global medium of exchange.
The Manipulation Apprehension
Among the primary promises made by Bitcoin at its commencement and among the keys for its success is its alleged impregnability as an independent currency, but this has been put to question by researchers ( Bovet et al., 2018). Bovet et al. (2018) is a study of general bitcoin trends since the currency commenced in 2010 with a particular focus on the three price bubbles that have been experienced. Each of the bubbles involves the rapid and seemingly unstoppable surge in bitcoin prices which would then be followed by a crush. It must be noted that any change in the value of a currency, whether it is a positive or negative change has a variety of implications and ramifications. Money is inter alia a measure of value as it is used to pay for goods and services. For example, it is impossible to quantify the actual value of a cup of coffee or a massage unless it is given a pecuniary value. If for example the cup of coffee or the massage are valued at a fraction of a bitcoin, an increase in the value of the bitcoin will also result in an increase in the value of the coffee or massage. However, despite the change of pecuniary value, the actual value of the massage or cup of coffee to the consumer remains the same. It is on this basis that any currency that is used as a measure of value should be as stable as possible.
Whereas there might not be any evidence of active or passive manipulation of prices before, during, and after the crashes, bitcoin hubs have been seen to play a critical role during each of the bubbles (Bovet et al., 2018). The basic idea behind the bitcoin was to have a currency that is free from any interference from external forces such as governments and banks. The avoidance of this hubs is based on issues such as lack of trust and potential for manipulation. Any apprehension that bitcoin will end up being manipulated just as modern money is will become a major barrier to bitcoin becoming a mainstream global currency. The fact that Bovet et al., (2018) suggests that studying bitcoin hubs can enable mitigation of bitcoin manipulation augments the apprehension since it reflects a lot of power be ing held by the hubs. The hubs thus present a major challenge to the bitcoin that needs to be addressed for bitcoin to thrive, if at all.
The Guilt by Associa tion Perspective
Another important issue that has come up relating to bitcoin is its association with crimes that might pose varied adverse ramifications on the mainstream usage of the Bitcoin. For a start, according to Matzutt et al. (2018), having the blockchain in itself is a challenge for some users who may be reluctant to have any association with unscrupulous transactions. As indicated above, the blockchain is meant to provide a platform through which every user of cryptocurrency in the world is given the capability to undertake due diligence by being able to evaluate all former transaction. By definition, the blockchain can be considered as a real-time up to date record of all cryptocurrency transactions on a global scale. Each person who has a cryptocurrency wallet can download the blockchain containing records of all previous transactions (Matzutt et al., 2018). Any future transactions will also be recorded chronologically within the blockchain with the privately held copies of the blockchain being updated in real time. The blockchain records may not have the actual particulars of the parties to the transaction as anonymity is part of bitcoin but it does have particulars of each transaction . It is some of these particulars that can be considered as disturbing to some bitcoin users. For example, according to Matzutt et al. (2018), some of the transactions recorded in the blockchain are for the supply of pornographic material including child pornography with the online links to pornographic sites being reflected in the blockchain. The presence of child pornography sites not only creates ethical challenges for bitcoin users but may also create legal liabilities. In many countries, the mere act of having child pornography sites in a retrieval system can result in acute legal ramifications. Further, the presence of criminal transactions in the blockchain which is clearly recorded in the blockchain also creates another challenge for the general usage of bitcoin. It may not be possible for every user to carefully evaluate every bitcoin that they transact with so as to ensure that it has never been used for anything illegal (Matzutt et al., 2018). Just like with liquid money, it is possible for an honest person to have bank notes that had erstwhile been used in an unethical transaction in the past. Unfortunately, because of the blockchain , it is possible to trace every bitcoin back to its origin. An honest person may thus be unable to use honestly acquired bitcoins because they had erstwhile been used for unethical transactions. The due diligence that is provided by blockchain may, therefore pose a challenge to some innocence bitcoin users, a fact that further limits the mainstream use of bitcoin.
The Future of Bitcoin
The research and analysis above have presented viable reasons why bitcoin can be the mainstream currency of the future and also challenges that seek to negate that eventuality. Considering the two opposing bearing factors, it is easy to wonder whether bitcoin will thrive or flop . Expert opinion as presented in Conti, Kumar, Lal, and Ruj (2018) is non-committal: In the near future, it is hard to comment on the survivability of the Bitcoin (p. 30) . The authors carefully elaborate the pro et contra of bitcoin hence coming up with the quoted conclusion. They also present an array of suggestion which in their opinion would ensure the success of bitcoin when properly implemented. Among the most viable suggestions is the introduction of backtrack proofed smart contracts (Conti et al., 2018). This is contracts that are specifically designed to self-execute so that bitcoins becomes automatically payable to a party upon execution of a certain contractual obligation. Smart contracts not only eliminate the need for due diligence but also ensure that no party can cross the other after the fact. The suggested backtracking component also ensures that the anonymity of the parties is assured. Another suggestion made is to increase transacting speed within the bitcoin system and also eliminate the problem of power wastage that has created an avenue for criticism. Finally, bitcoin has been having the risk of internal manipulation as had been indicated above and Conti et al. (2018) has also made suggestions to eliminate this. Proper management of miners for the blockchain is among the suggestions made to prevent internal manipulation. Based on foregoing, whereas the said authors seem non-comital about the bitcoins potential for future success, their elaborate suggestions of improvement is a pointer that bitcoin has a higher propensity for success than failure. The dire need for bitcoin as outlined above combined with the elimination of its weaknesses as reflected in Conti, Kumar, Lal, and Ruj (2018) can only lead to a conclusion that either Bitcoin or an improved version of it will be the currency of the future. Real paper money will eventually be replaced with cryptocurrency whose primary prerequisite will be freedom from governmental superintendence and control.
References
Bovet, A., Campajola, C., Lazo, J. F., Mottes, F., Pozzana, I., Restocchi, V., ... & Tessone, C. J. (2018). Network-based indicators of Bitcoin bubbles. arXiv preprint arXiv:1805.04460
This is a peer-reviewed academic article based in primary studies undertaken on the bitcoin system in general and more specifically with regard to the three bubbles it has ensured between 2010 and 2018. The study focuses on the impact, authority, and control that bitcoin hubs yield on the system more so before, during, and after the bubble. Based on the research, there is no evidence to show that the hubs actively or passively manipulate the currency. The hubs, however, seem to have a strong influence over the fluctuation of the currency. According to the researchers, studying the hubs might enable mitigation of future bubbles. There is also an underlying suggestion that the influence held by the hubs is not good for the bitcoin. The article is peer-reviewed hence credible.
Conti, M., Kumar, S., Lal, C., & Ruj, S. (2018). A survey on security and privacy issues of bitcoin. IEEE Communications Surveys & Tutorials
This peer-reviewed journal article is an independent assessment of the bitcoin and blockchain system in its current state and also predictions about its future. The article is predicated on a comprehensive literature review about bitcoin and blockchain and also a careful study on the two forms of interrelated technologies. The authors laud bitcoin and blockchain which they indicate has risen to become an over US$170 billion enterprise. They also present the many benefits of bitcoin to the modern world. Further, the authors venture into the challenges that bitcoin is facing including potential harm from miners, using too much power and security issues. Finally, the authors give recommendations and suggestions for bitcoin to overcome its adversities. The article is balanced, peer-reviewed and authored by qualified experts hence credible and reliable.
Matzutt, R., Hiller, J., Henze, M., Ziegeldorf, J. H., Müllmann, D., Hohlfeld, O., & Wehrle, K. (2018). A Quantitative Analysis of the Impact of Arbitrary Blockchain Content on Bitcoin. In Proceedings of the 22nd International Conference on Financial Cryptography and Data Security (FC). Springer
The instant article is a presentation for the 22nd International Conference on Financial Cryptography and Data Security 2018 made by a collection of information technology expert. It is a report made as an outcome of a study undertaken on the subject of bitcoin in general with a focus on the Blockchain platforms. More specifically, the authors outline the pro et contra of the blockchain with a focus on the adversities that the platform might present to its users. Among the prominent areas of focus is the fact that every bitcoin user keeps a local copy of the blockchain which contains information that may compromise the users ethically and legally, such as links to pornographic sites. The article also recommends a higher level of superintendence to eliminate unscrupulous transactions within the bitcoin so as to encourage its mainstream usage.
Valente, A., Atkinson, D., & Clifford, J. (2018). CAN BITCOIN BE THE FUTURE OF DIGITAL PAYMENTS?. In Economic and Social Development (Book of Proceedings), 32nd International Scientific Conference on Economic and Social (p. 206-217).
The instant article was written for publication in the 32nd International Scientific Conference on Economic and Social Development – Odessa, 21-22 June 2018. The article carefully evaluates the pro et contra of cryptocurrencies and bitcoin with an emphasis on why bitcoin may be the primary mode of monetary transactions in the future. Among the groups presented include populations losing trust with their governments on economic and commercial issues and limiting costs and time-wastage in modern transacting. The article also evaluates several challenges faced by bitcoin including security risks and association with crimes even as it offers suggestions for mitigating the problems. Being peer-reviewed and written by experts on the canvassed subject, the article can be considered as credible and reliable.
