Bitcoin: The Future Of Money

Rising prices of the new digital currency bitcoin have given digital enthusiasts a reason to rejoice over the last few months. But it isn’t good news for everyone. At least, not for governments and fiat currency issuers, it seems.

Let’s consider the price of bitcoin and its amazing rise as a medium of exchange. The price of a single bitcoin surged from about $583 a year ago to the current $2,861, an increase of 390 per cent. Its price in June 2013 was about $100. That’s again a phenomenal rise of 2,761 per cent! Bitcoin surpassed the price of gold, which hovers around the $1200-mark, long ago. So what’s next now?

There is no shortage of explanation for why bitcoin is on the radar of collectors and investors. First, it works on the blockchain technology. Its transactions are recorded on multiple ledgers simultaneously.
 
Second, mining bitcoins requires tremendous amounts of computing power. Last year, its database size doubled to 100 gigabytes, and still continues to expand.
Third, bitcoin is increasingly being used as digital currency of exchange. In Japan, for instance, bitcoins can be used for purchasing travel tickets.

All this, is giving the cryptocurrency its digital popularity. Says Saurabh Agrawal, co-founder and CEO, ZebPay: “Many countries are regulating the currency. Japan treats bitcoin as a mode of payment. China has been regulating the currency. Governments are realising that bitcoins have the potential, and that we can use the process of payments better. So bitcoin demand has gone up.”

In India though, the cryptocurrency is not a legal means of exchange. The Reserve Bank of India has warned investors and traders of using virtual currencies including bitcoins. “The creation, trading of virtual currencies including bitcoin as a means of payment are not authorised by the central bank or monetary authority,” the RBI said.

Across the world though, is another story. Bitcoins and other cryptocurrencies are increasingly being used to make payments, which is giving rise to new demand. Last counted, bitcoin was worth about $30 billion.

The virtual currencies are also being seen as an asset class, like gold. “It’s an asset class. It will be a store of value, and a mode of payment for cross-border transactions, and dealing on the Internet,” says Agrawal.

He says as more people start using it, it can become a mass product. “When Airbnb asked customers what can be incorporated in the app, they wanted bitcoins to become a mode of payment. So when a lot of people accept bitcoins, naturally its usage and demand will spread,” he reckons.

Bitcoins are, however, highly volatile. Its price has been fluctuating wildly because of rising speculation and the sudden demand for the currency from countries such as Japan. “The market is small at around $30 billion, volatility will be really high. Till the time bitcoin doesn’t cool down, it will not be used in day-to-day things, and be mainly used for cross-border remittances,” says Agarwal.

The stellar rise of the currency is also because of the limited amounts of bitcoin that can be mined, and the fact that it cannot be copied. But as its future as regular tool of exchange, bitcoins are far from replacing fiat currency. For one, many vendors have to install expensive systems to be able to accept bitcoins, and two, its price is far too choppy. Now who would want to accept a currency that keeps swinging every now and then?