Bitcoin advent: Regulations and policies

While the Bitcoin is an electronic currency with no authority or issuer, it is seen to have boosted black market activities and money laundering. There is no central bank or fractional reserve system controlling the supply of Bitcoins

Currencies have changed drastically since the beginning of civilization. Initially, certain commodities were used as currencies such as barley and rice. These were simple and easy to understand as they had intrinsic value that was guaranteed by their alternatives uses. Many of the commodities used were perishable and didn’t represent a great store of value.

As a result, the system shifted to precious metals which were limited in supply. As things progressed people no longer wanted to carry gold or silver for each transaction of their daily lives. Therefore, eventually, governments began national currencies, backed by gold or silver, which continues to exist today.

However, over the last few years, we have seen the emergence of a completely new and different type of currency named cryptocurrency led by Bitcoin which was never backed by any commodity and isn’t even. The name Bitcoin has rapidly gained popularity and is seen very successful for people to transact. In a simple sense, it is an electronic coin, unlike the physical currency, as a chain of digital signature.

It was invented by an unknown person under the name Satoshi Nakamoto in 2008. Its complete decentralized peer-to-peer network is the paramount reason of its popularity and success. This means that there is no central administrator or specific point of control. All of Bitcoin in the world is held by users of its network in their own individual Bitcoin wallet or Bitcoin clients.

Each wallet is associated with one or more Bitcoin addresses, these are similar to an email address and allow anyone with your address to send you money from anywhere in the world at any time. Similarly, every wallet has a key that allows the owner of the wallet to access the Bitcoin stored within.

Bitcoin is fast becoming essential to people who value privacy, and for whom the idea of using cryptography to manage and regulate the creation and distribution of money does not sound too implausible. It is taking the financial world by outbreak with more people buying and selling these currencies. However, there are also emerging extensive confusions about its effectiveness.

Recently the Nepal Rastra Bank, the central bank of Nepal, has announced the Bitcoin as illegal currency and there are some obvious reasons for its restrictions in developing countries like Nepal. While the Bitcoin is an electronic currency with no authority or issuer, it is seen to have boosted black market activities and money laundering. There is no central bank or fractional reserve system controlling the supply of Bitcoins. Instead, they are generated at a predictable rate such that the eventual total number will be 21 million. On the other hand, Bitcoin has grown drastically as compared to Russia’s Ruble and Brazil’s Real, the world’s foremost hard currencies. As a result, it emerged as a better bet for investors while beating foreign exchange trade, stock exchange trade and commodity contracts.

Most of the praise awarded to Bitcoin centers around the decentralization and ease of transactions. Bitcoin is a mechanism to get around the inefficiencies of the current banking systems. For instance, a credit card transaction under the current financial system typically takes three business days to get confirmed while Bitcoin takes only seconds to be registered globally and at the most 10 minutes to be included in the blockchain.

Credit cards also impose significant fees on transactions and limit the size of transactions that can be made, barring people from buying things that are below a certain price threshold. The main problems associated with fiat currencies are counterfeiting and double spending. In order to prevent these, banks must confirm and clear every single transaction taking place in the network, this is an expensive and time consuming process.

Through the nature of Bitcoin’s distributed confirmation system all of these are avoided and the costs are covered, at least for the meantime, through the expansion of the currency.

Furthermore, many nations around the world are implementing isolationist policies which restrict remittances made from other countries or vice versa either by making the charges too high or by writing new regulations. This fear of being unable to send money to the family is driving more people towards the digital cryptocurrency, led by Bitcoin. The reason for its popularity relies on its more legitimate businesses and companies have started accepting them as a form of payment system. Also, it can be converted into other forms of currency and deposited into the user’s accounts at  lightning speed. Bitcoin has seen as novel digital that has the potential to be a significant player in the micropayment and virtual world commerce markets. It is running with the usual framework of coins made from digital signatures, which provides strong control of ownership.

Some believe that in the coming decades the fiat currency and cryptocurrency will continue to exist in parallel, while others believe that national governments will rework their currencies with sanctioned means of exchange that have some cryptocurrency features, like built-in scarcity and virtually impenetrable counterfeiting protections. Investors need to research as much as they can before investing in any crytocurrencies with respect to the national government’s regulations and policies.