The Implications Of Digital Currency

[Jerrymooney]

By Jerry Mooney

When I first heard of Bitcoin my understanding of it was that it was merely a way to obfuscate illegal transactions on the deep web. I also thought you got Bitcoins by somehow ‘hacking’ bank accounts or some other dubious activity. Little did I know that it is a legitimate currency that is creating enormous ramifications to the way money is used and created world wide.

Some of the more obvious implications surround how digital currencies affect underground or illegal activities from drug sales to gambling to neighborhood yard sales. But the conversion requires a faith in the non-tangible or digital. And the faith extends to the fact that the currency is not backed by any conventional value, like gold or GDP. This means that Bitcoin has value because everyone believes it has value.

Although this is not completely dissimilar to current money, because it has little historical tradition, it currently has much greater value volatility than established currencies. This faith can be hard to come by when we’re talking about or money, but we currently use ATMs and online banking with near ubiquity, so the idea of a digital economy already largely exists.

So what are the pros and cons of digital currency? According to Northeastern University, the limitations of Bitcoin are mostly due to its relative newness to the economy, like value fluctuations, acceptance and its development is yet to be complete. The advantages, however are surprising. Because Bitcoin is not a ‘national’ currency like the dollar or even ‘regional’ currency like the Euro, transactions across borders can be made without exchange rates which can lower transaction costs. Also, because it is not tethered to central banks or governments, the value can’t be manipulated it can only fluctuate based on broad economic factors.

And like I mentioned, it can be used for anonymous transactions. This capacity is not merely to create an opaque world for criminal activity. People are becoming increasingly concerned with their identities being mapped by big data and predictive analytics, if not stolen outright. When Amazon suggests something for you to buy, it is because their algorithms have matched you with other predictable choices. This may seem innocuous, but many are growing uncomfortable with this level of privacy breach.

Because Bitcoin uses mathematics to create accounts it is substantially harder to hack than conventional accounts. This makes it more secure than conventional accounts. University of Cincinnati shows an audit of T-Mobile files that were hacked used personal data like names, addresses and driver’s license numbers to steal identities. The report also indicates that there is a growing number of accounts being hacked and even ostensibly secure companies like Yahoo, Target, Adobe Systems and SnapChat were victimized. This makes the crypto mathematics of Bitcoin more appealing because of its randomized creation doesn’t link the Bitcoin holder to any personal identity. And because of the complexity of the algorithms and identity signatures created, it would take a near miracle to counterfeit someone’s Bitcoin file.

Ultimately, money is a method of communicating shared value. Beyond this the details don’t matter and money has existed in the forms of broken sticks, promissory notes, metal coins, controlled paper, commodities and now electronic digits. And because money hasn’t had intrinsic value for centuries, there is no reason that digital money shouldn’t reflect the cultural changes of our society. And it could very well become a benefit.