I'm not an economist or even a business major. However, I do enjoy learning, and I've been spending a fair amount of time researching bitcoin and how money works in general (lot's of biased opinions and I'm sure I am no different in holding a biased opinion). In any event, the following is how I see the case for and against bitcoin.
The Case For Bitcoin
1) The Chinese are investing heavily in bitcoins.
a) It is hard to get money out of China and bitcoin is one path to solving this problem for rich Chinese citizens.
b) The Chinese want a viable alternative to investing in the dollar via loans, and the Chinese would love to see bitcoin become that alternative, because it can't be printed at a governments whim and doesn't suffer from the effects of inflation.
c) For political reasons the Chinese would like to see the entire world move away from the dollar as the world's primary reserve currency. Anything that takes the U.S. down by a peg or two has a certain appeal. I'm sure China isn't the only country with this desire.
2) Bitcoin has reached close to critical mass, unlike the 50+ other competing digital currencies. Anyone is free to create a similar digital currency, but it only has worth if people embrace it. Once a Facebook, Amazon, Google, etc. is established it is very hard to unseat them (but not impossible). This also applies to bitcoin.
a) Bitcoin received a cautious blessing by Federal Reserve chairman, Ben Bernanke, during a recent U.S. Senate hearing on bitcoin, where he stated that it has "long term promise."
b) Bitcoin has recently been recognized by Germany as private money.
c) Bitcoin has had major exchanges set up in China and Japan where people can exchange hard currencies for bitcoins.
d) Bitcoin is increasingly becoming the darling of Silicon Valley entrepreneurs and venture capitalists.
4) Bitcoin is like gold -- only better.
a) There is only so much gold in the world and you can't print gold. Bitcoin is similar in that there are finite number of bitcoins. Technically, the bitcoin money supply is growing at a predetrmined rate (kind of like mining gold), but it's growth is slowing, and once it reaches 21 million coins the growth stops. This is in contrast to the dollar (and other fiat currencies) where the money supply is manipulated by government (or quasi-government) entities. For example, the Feds QE-1, QE-2, and QE-Infinity programs where they are basically printing money to try and stimulate the economy. Other examples include the printing of German Marks during the Weimar Republic and more recently the printing of currency in Zimbabwe. Gold, and bitcoins, cannot be "printed" so they don't lose value due to inflation.
b) Bitcoin has two major advantages over gold. The first is that divides really easily. You don't have to use an entire bitcoin. You can use just a fraction of a coin. The 2nd, and even more important advantage, is that bitcoins were built for electronic commerce. You can exchange bitcoins over the internet and without the transaction fees associated with dollars (e.g. Visa, Mastercard, Paypal).
5) If bitcoin takes off like Facebook, Amazon, etc. then the early investors will make a financial killing. It is not too hard to envision that a decade from now bitcoin has grown into a major currency. It could become the kind of currency that is widely accepted by both online and B&M businesses (remember, no transaction fees). It could become the preferred method of payment where people would rather use a simple app on their phone to exchange money instead of even cash. It could even supplant the dollar as preferred currency world wide.
The Case For Bitcoin
1) The Chinese are investing heavily in bitcoins.
a) It is hard to get money out of China and bitcoin is one path to solving this problem for rich Chinese citizens.
b) The Chinese want a viable alternative to investing in the dollar via loans, and the Chinese would love to see bitcoin become that alternative, because it can't be printed at a governments whim and doesn't suffer from the effects of inflation.
c) For political reasons the Chinese would like to see the entire world move away from the dollar as the world's primary reserve currency. Anything that takes the U.S. down by a peg or two has a certain appeal. I'm sure China isn't the only country with this desire.
2) Bitcoin has reached close to critical mass, unlike the 50+ other competing digital currencies. Anyone is free to create a similar digital currency, but it only has worth if people embrace it. Once a Facebook, Amazon, Google, etc. is established it is very hard to unseat them (but not impossible). This also applies to bitcoin.
a) Bitcoin received a cautious blessing by Federal Reserve chairman, Ben Bernanke, during a recent U.S. Senate hearing on bitcoin, where he stated that it has "long term promise."
b) Bitcoin has recently been recognized by Germany as private money.
c) Bitcoin has had major exchanges set up in China and Japan where people can exchange hard currencies for bitcoins.
d) Bitcoin is increasingly becoming the darling of Silicon Valley entrepreneurs and venture capitalists.
4) Bitcoin is like gold -- only better.
a) There is only so much gold in the world and you can't print gold. Bitcoin is similar in that there are finite number of bitcoins. Technically, the bitcoin money supply is growing at a predetrmined rate (kind of like mining gold), but it's growth is slowing, and once it reaches 21 million coins the growth stops. This is in contrast to the dollar (and other fiat currencies) where the money supply is manipulated by government (or quasi-government) entities. For example, the Feds QE-1, QE-2, and QE-Infinity programs where they are basically printing money to try and stimulate the economy. Other examples include the printing of German Marks during the Weimar Republic and more recently the printing of currency in Zimbabwe. Gold, and bitcoins, cannot be "printed" so they don't lose value due to inflation.
b) Bitcoin has two major advantages over gold. The first is that divides really easily. You don't have to use an entire bitcoin. You can use just a fraction of a coin. The 2nd, and even more important advantage, is that bitcoins were built for electronic commerce. You can exchange bitcoins over the internet and without the transaction fees associated with dollars (e.g. Visa, Mastercard, Paypal).
5) If bitcoin takes off like Facebook, Amazon, etc. then the early investors will make a financial killing. It is not too hard to envision that a decade from now bitcoin has grown into a major currency. It could become the kind of currency that is widely accepted by both online and B&M businesses (remember, no transaction fees). It could become the preferred method of payment where people would rather use a simple app on their phone to exchange money instead of even cash. It could even supplant the dollar as preferred currency world wide.
BA Liberal Studies from Thomas Edison State University
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