Is Bitcoin a probable future currency?

By Anusha Gupta,

bitcoin

We have reached the high point of the Internet age haven’t we? There is nothing that cannot be done over the Internet. In 2013, the online transactions in India grew by 88%, which is staggering growth for an industry. Since e-commerce is growing so rapidly it is natural that modes of payment will also change with the changing times. Who thought that we’ll see a new currency altogether?

Enter Bitcoins. Bitcoin is a peer-to-peer network based anonymous digital currency. To break it down, a peer to peer network means that there is no central authority to monitor the transactions or issue new currency; it is a completely decentralized form of currency. Anonymity means that the identity of the parties can remain hidden from the parties themselves or the public. Bitcoins are basically digital coins that people can exchange via the internet. As compared to other alternatives, they have many numerous advantages; bitcoins can be transferred directly to the other person without having to go to a clearing house. This means that the fee is much lower, it can be used in any country and the accounts cannot be frozen. With all these advantages, bitcoins certainly takes currency a notch higher.

But, is bitcoin a stable currency? No, it is not.  The price of bitcoins has fluctuated wildly since its inception, going through various cycles of appreciation, which have been referred to by some as bubbles. In 2011 the value of one bitcoin rapidly rose from about US$0.30 to US$32 before falling back down to US$2.

Following increased media attention in the latter half of 2012 and the 2012-2103 Cypriot Financial Crisis, the bitcoin price began to rise again in early 2013 reaching a peak of US$266 on April 10 before crashing to around US$50. What questions the use of bitcoins as a currency is not the utility (it can be used as a medium of exchange) but the volatility of the currency. Speculations around bitcoins are one of the major reasons which have led to the rapid increase and fall in their value. Another major reason for volatility is that the bitcoin does not seem to have any intrinsic or real value, which is why it follows the lines of a true economic bubble.

This brings us back to the original question, it bitcoin the future of currencies? Only time will tell. Bitcoin does show a lot of promise but it cannot work as a currency until and unless the volatility is reduced. People need to have the assurance that their bitcoins will be worth the same amount tomorrow as they are today.

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