Bitcoin can arguably be considered as another product of the ever-evolving financial systems in the world. Its existence in itself is enthralling, making us humans introspect into how far we have come from the times of the barter to fiat money and then to digital currencies. Can it be considered the final form or is it inexorably going to evolve into some advanced system? Well, the question is certainly groaning under the weight of uncertainty and the ungauged potential of human agency.
Putting aside the figurative description of bitcoins. Let’s get into the basics first. What are bitcoins and why has it become so ubiquitous, from social media memes to utterances coming from the mouths of your peers.
Bitcoin is a type of cryptocurrency and in order to understand what the former is and its impact globally, you have to understand it under the larger context of the latter.
So, a cryptocurrency is a virtual or digital currency that was created to serve as a medium of exchange. The prefix crypto is rooted in the fact that cryptocurrencies use cryptography, which is discerning of codes between the sender and the recipient with the usage of secure communication techniques to secure and verify transactions as well as to produce new currency units. The data regarding the transactions made in cryptocurrencies or bitcoins, in particular, are stored in a chain of computing systems collectively called a blockchain. This simply implies that there is no one source where your data would be stored but rather in bits and pieces across a plethora of computing networks across the globe.
The impact of bitcoin on a global level is highly contentious with people finding themselves fixed over two sides of the spectrum. But, let’s bifurcate the rationale behind these opinions to make a better sense of bitcoin’s global clutches.
The Curious Case Of Venezuela and El Salvador
Over the years there despite the initial reluctance, a trend can be seen in terms of acceptance of cryptocurrencies. Many countries such as the US and European Union dread what a fully-fledged functioning of cryptocurrencies would likely herald, owing to its volatile or fluctuating nature and safety issues attached with it. Take the example of Venezuela the country is notoriously famous for its high inflation. In this case, their tolerance of the fluctuation caused by bitcoins would be far greater than in the countries like the US given the fact that their domestic countries over the years have plummeted to the extent where rising seems an arduous task.
Another example that can be adduced is of El Salvador, another South American nation where about 80 percent of their population are devoid of any bank account to invest their fortune in. This allowed bitcoins to rush into the breach and become legal tender. Another reason why the government of El Salvador pressed for the introduction of bitcoins is because of the massive financial hit inflicted upon the nation by the Covid. This gave way to an experiment in the El Zonte region of the country run for over a year where the adoption of bitcoin was given an official stamp and now people could use it as a medium of exchange and an institution where they keep their savings. But here also the issues that consequently surrounded were regarding the anonymity of the transactions, using bitcoins as a means of tax evasion, and high volatility that is beyond the appetite of their people.
The compounding factor in bitcoins is the same as equities, leading to many companies and individuals benefitting from it, with many even relying upon the cryptocurrency as a means of their subsistence. This growing demand demands improvements in current economic infrastructures which many countries are willing to undertake due to its potentiality.
Moreover, since bitcoin transaction doesn’t require a tangible structure for their maintenance and sustenance it reduces the cost of transactions to a sheer minimum. This gives way for more and more people across the world to vest their trust in these new payment methods as a result making a closely-knit economic community cutting across trans-regional boundaries.
Bitcoins apart from their function of ensuring smooth transactions and acting as a hedge against inflation and are also being used by many investors around the world as an asset for the sake of portfolio diversification. The rationale behind this is that equities and bitcoins are two different entities unrelated to each other in any given respect. So if one goes down in the future, the other might save some jacks. In this regard, they are quite similar to precious metals such as gold.
On the other hand, as per the report from the Financial Stability Overnight commission, the impact that the crash of virtual currencies such as bitcoin on global financial stability, has a minimalist impact because it is still not being used substantively contrary to the mortgage bank securities crash that both wreaked havoc domestically in the US and as a ripple effect in the global economy. But, the elephant in the room is that once brought under normal use or made a convention, bitcoins may turn the whole economies upside down and that’s what many experts portend.
Also Read: Everything You Need To Know About Uniswap Cryptocurrency
Conclusion
As of now, the total market cap of cryptocurrency is about 1.91 trillion dollars out of which 600 billion dollars worth of market cap is apportioned by bitcoins. The trend seems to reflect the growing propensity of the global population to latch on to this intangible asset and with time it is only going to increase bringing along a whole bunch of concerns that the global community may have to entertain, whether now or in the future.
Leave a Reply