Bitcoin, How Long Will It Survive?

“When a government overvalues one type of money and under values another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.”

This is the quote from Gresham’s Law; otherwise known as “Bad money drives out good money.” As the Bitcoin have become more and more accepted as a currency and various places, we naturally ask: “Is it good money or bad money?” and “How long will it survive?”

Is Bitcoin overvalued? This is a tricky question to answer, since at first glance Bitcoin does not seem to have any intrinsic value or ethos from authority. After all Bitcoin is one of digital money; the difference between 1 Bitcoin and 1 million Bitcoin is just one digit difference in Bitcoin web’s data.

Then, where does its value come from? Why do people want to trade about 250 dollar with 1 Bitcoin?  There must be some source giving its value, and it is the stability of the system. Using cryptography and user-based web, Bitcoin provides secure, fast, anonymous transactions platform, which is the achievement never seen before in history. Therefore, even though, it would be unlikely that Bitcoin will take place of major currency, people will not stop using Bitcoin due to its unique abilities which cannot be easily found in major currencies.

Reference: Wiki page of Gresham's Law, here.

Impact of Bitcoin (Tedx Videos)

• In Hollywood, the fast and easy transaction of bitcoins will help more effective promotion in their business.

• Dug Campbell talks about the relationship between trust and Bitcoin and the significance of advanced technology used in Bitcoin.

• Eric Spano describes the effectiveness of Bitcoin system to help people who does not have access to secure bank system with free of cost.

Bitcoin, Its Negative Sides

Everything has positive and negative sides, and Bitcoin is no exception. As briefly stated in my first entry, Bitcoin allows secure, fast, anonymous transaction, which can also be misused with bad intentions. The followings are summaries of crimes which are related with Bitcoin.

·         Charlie Shrem was CEO of Bitcoin Exchange Company. He was sentenced 2 years of prison cooperating with the person who funded for illegal activities.

·         2 largest banks in Hong Kong, China, were cyber-attacked and the criminals who led such attack demanded Bitcoin.

·         Justin Moreira was arrested for an attempt to buy $2500 firearm using Bitcoin. Luckily, he was caught by Federal agents’ sting operation.

·         Bryan Micon was prosecuted with crimes for running an unlicensed gambling business with Bitcoin.

For more detailed information of the crimes, click here.

What is Dollar standard?

US Dollar is a fiat money; fiat money is currency used due to government’s order. There is no intrinsic value of such money, whereas in gold standard the currency did have an intrinsic value—usually some amount of gold. However, we still use such fiat money because of the ‘credit’ of the government issuing such money.

United States began abandoning gold standard from 1933 by President Franklin D. Roosevelt, and by early 1970, U.S. completely severed the relationship between US Dollar and gold. There are 3 major different ways to determine the value of Dollar: exchange rate, Treasury notes, and foreign exchange reserves.

1.       Exchange Rate: This way measures the value of Dollar in comparison to other countries’ currencies. If other countries are willing pay more of their currencies for US dollar, the value of US Dollar goes up; whereas, if they are willing to pay less, the value of US Dollar goes down.

2.       Treasury Notes: This way measures the value of Dollar with the faith of investors in US’ economy. Investors buy Treasury Notes from the government, and receive fixed about of interest until certain periods. Generally, if there is less faith toward US economy, there is less demand of US Dollar; otherwise, vice versa.

3.       Foreign Exchange Reserves: Many foreign countries hold/save US dollars for their economic interest, and this method evaluates value of Dollar based on tendency the amount of savings of US dollar among foreign countries. 

Reference: for more info click here.

What is Gold Standard?

Gold standard is the monetary system used for a longest time in the history. Its existence can be traced back to 643 B.C. in Turkey, when they started make gold-contained coin as their currency. Nowadays, most of the countries abandoned gold standard—U.S. abandoned its gold standard in 1933—and now U.S. dollar serves as a global standard for currencies around the world.

In gold standard, the value of a country’s currency is determined based on how much of the country’s money is equal to one ounce of pure gold. For instance, let’s examine the following hypothetical situation:

	U.S. (Dollar)	Argentina (Peso)
1 ounce of gold	= 100 Dollar	= 25 Peso
1 unit of currency	= 0.01 ounce of Gold	= 0.04 ounce of Gold
Therefore, in this hypothetical scenario, 1 Dollar < 1 Peso

Note that, just because one’s unit of currency is stronger than the other one, it does not imply that one’s economy is better than the other. Even the country’s unit of currency is stronger than others, there might not be enough money circulating in the country.

Brief History of Money

First, people started barter to get what they wanted, which worked fine in small community.

In about 600 b.c., people started to see the need of coinage to trade in bigger community.

As the scale of trade in human society become bigger and bigger, people needed an object which can set the standards among different currencies; gold became the object.

And then, dollar replaced the role of gold by 20th century; 

the ethos of United States' economy was based in this system.

With the help of advanced technology, digital currency like Bitcoin provided different methods of payment!

Over the next several blog posts, I will investigate each portion of history in more details.