Global Uncertainty Behind Bitcoin’s Growth
Has Bitcoin finally earned a part on the world stage? In a global economy where political news can trigger a currency’s collapse without notice, some individuals are turning to digital currencies. Of the numerous virtual currency options that exist, Bitcoin has become the most well-known. In 2016, more than $92 billion worth of Bitcoin transactions were processed. Why are virtual currencies like Bitcoin so promising, and what are the risks of being able to send funds without a paper trail?
Bitcoins take out the Middleman
Bitcoins are a fast and reliable way to transfer funds peer to peer. This means that there are no middlemen, and both parties can agree on the costs of the transaction. Because the currency is not backed by a Central Bank, it cannot be manipulated by a national government for political considerations. This is in contrast to when the Federal Reserve decides to print more dollars, which lowers its value and increases inflation.
Helping the Third World Economy
Bitcoin offers the potential to revolutionize third world payments. Citizens in many third world countries do not have access to the world economy because neither PayPal nor credit card systems can function locally, due either to technical limitations or concerns about fraud. Bitcoin transactions can be especially useful for workers who have traveled to foreign countries and are now sending payments abroad. Transferring funds through Western Union, the most frequent method at this point, can take out fees of up to 16 percent of the original amount sent, basically a tax on the poor.
The History of Bitcoin
A programmer or group of programmers using the pseudonym Satoshi Nakamoto created the Bitcoin in 2008. The goal was to create a virtual currency that was anonymous. Technically, individuals do not own Bitcoins. Instead, bitcoins link directly to bitcoin addresses. There is a public ledger which records when Bitcoins are transferred from one address to another, but there is no record of who owns each address. This made the virtual currency a natural fit for individuals who prioritize privacy, or who have concerns about today’s banking system.
How the Market Determines Bitcoin Values
As the Bitcoin is decentralized, its value is determined by speculation. This has led to a high level of volatility, as no one is sure how much bitcoins will be worth in the future. Much like gold, when the world’s economy is uncertain, the value of the Bitcoin goes up. Following the election of Donald Trump, Bitcoin values climbed from $450 to over $1000, doubling in the space of a few months.
The Dark Side of Bitcoin
Bitcoin is also the currency of choice for many illegal activities. While the United States Treasury has approached the Bitcoin with a relatively light hand, they are keeping a watchful eye on its evolution. In August of 2016, a former CIA analysts announced the first terrorist group found to be soliciting funds in Bitcoin. And the Silk Road marketplace has been going strong in various iterations for five years. This online black market offers illicit merchandise and services anonymously, and only works with Bitcoin payments to maintain privacy.
Could Bitcoin Support Terrorism
The growth of virtual currencies could prove to be a serious roadblock in the fight against terrorism. A major tool used by the U.S. Department of Treasury is a global blacklist which keeps targeted individuals from trading in U.S. dollars. Nearly 90 percent of foreign currency exchanges involve dollars. So, this effectively stops the individual from using the banking system. However, access to options such as Bitcoin threaten to disrupt that chain. It is possible that terrorists might create a network of alternative payment systems which would be untraceable. This could force the world to handle threats like Islamic State and Iran militarily, instead of economically, which is more effective and less costly.
How Bitcoin’s Rise Affects Trading
The EU faces economic uncertainty throughout 2017, from the Brexit and the upcoming elections in France, Germany, and the Netherlands. This makes the Bitcoin look relatively safe for the next few months, helping to depress the euro. The added payment options for third world countries encourage foreign investment. This is especially important for the Middle East, which relies upon foreign workers to staff their service industry. The Saudi TADAWUL Index could experience a hefty bump.