Cryptocurrency Research Paper

5/29/18

Cryptocurrency Research Paper

Since its inception in 2009 Bitcoins (and cryptocurrencies in general) have generated large amounts of attention from the media and the public of the United States. Bitcoins are so popular that even past tech moguls such as Bill Gates are praising it is ingenuity even going so far as to say that “Bitcoin is a technological tour de force” (Rosulek). But all great successes have their roadblocks and Bitcoin is no exception to the rule. The most impactful drawback to using Bitcoin and other cryptocurrencies is that they disrupt the global economy by challenging the United States Dollar, endangering the roles of financial mediators, and having an extremely volatile market. This disruption would affect nearly every single country on the planet, some even being thrown into an economic crisis that they may never be able to return from.

To understand the challenges Bitcoin presents what must first be asked is “What is Bitcoin”. Bitcoin is a digital currency that can be used to buy goods and services just like paper money. The differences between the two modes of payment are in how each one is represented and the way they are used for buying things. Physical currencies like the Dollar are run through a government or some type of “centralized body” whose purpose is keep track of transactions made so when people use their money it has a specific value. Bitcoin on the other hand is a digital currency that can be used to buy things much like money but with no physical representation. This is a decentralized currency meaning that no single entity or government has control over how it operates, it is instead “run by a decentralized network of computers around the world that keep track of all Bitcoin transactions” (NYTimes). These records of Bitcoin transactions held on different computers is known as the “Blockchain”. Like paper money Bitcoin has no intrinsic value it is just a bunch of 1s and zeros. The thing that sets each of these two apart is that while paper money like the dollar is backed by the promise of the United States government that it has value but Bitcoin is backed by the mathematical guarantee that a certain number of Bitcoins Are created in a specific time frame, in other words it is regulated by time itself which is a universal constant.

The decentralization of Bitcoin threatens the US Dollar Standard in the global economic market place. The US dollar is very important to the rest of the worlds trade ability and even has been called “The reserve currency of the global economy” (Medium.com). Because Bitcoins are decentralized their transactions do not have to go through the US dollar like other transfers of money. This decentralization causes the US dollar to have less pull in global market which makes it harder to get a desirable result when dealing with things like international trade or imposing economic sanctions. If the dynamic of the dollar standard changes to much too quickly it could cause chaos for trade because of the uncertainty of not having a centralized currency, making the value of goods being traded spike up and down.

Bitcoins efficiency in transferring money puts the roles of financial middle men at risk. Institutions like “like clearing houses, banks, and SWIFT” (Medium.com) have been how you transfer large amounts of cash in the established financial environment.