Is Bitcoin the Sign of a New Age in Currencies?


What is a currency? A currency is a unit of measure, which is used to facilitate exchange. Does it matter who issues the currency or where it comes from? It does not as long as the parties doing the exchange agree on the terms. Bitcoin is an example of a currency. There are infinitely many currencies that have existed in the past and more will exist In the future.

Does the fact that some governments ban the use of Bitcoin, others allow it and others want to regulate it seem inconsistent? This demonstrates that the fate of a currency will depend on what the consensus agrees to. That consensus is generally the users of the currency.

Why did Bitcoin get as large as it did in the first place? Currencies are based on exchange – but the widespread use of a currency is based on trust and faith in the issuer of the currency. The trust is that the value of a currency is represented by actual resources that can be accounted for and used as collateral in an exchange should that become necessary.

As an example, I agree to buy apples from someone and they give me a memo stating that they will pay me in oranges. These oranges are represented by 10 units of the U.S. dollar. I am banking on the fact that those 10 units of the U.S. dollar are backed by some entity that is accountable, and I can exchange those units for the oranges that I originally wanted to buy, in the case the U.S. Federal Reserve who is acting on behalf of the U.S. government. Ten units of a currency are useless unless they can be translated into something I want to have. This is true for every currency because the currency acts as a measuring stick, a translator and a unit of account for the resources and goods that seek to be traded. If you measure something in inches or centimetres, the thing being measure is still the same size.

How is this related to Bitcoin? It shows that currencies like this can spring up anywhere and anytime as long as they adhere to the rules above.  More currencies like Bitcoin have been used in the past and will be used in the future.

Sources:

1)      http://asia.nikkei.com/Politics-Economy/Policy-Politics/Japan-to-regulate-Bitcoin-trades-impose-taxes

2)      https://bitcoin.org/en/

3)      http://news.cnet.com/8301-1023_3-57620092-93/mt-gox-ceos-blog-hacked-alleged-bitcoin-balances-posted/

 

 

Advertisements

About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

One Response to Is Bitcoin the Sign of a New Age in Currencies?

  1. I love it when folks get together and share thoughts. Great website, keep it up!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: