There has always been talk about inflation and the damage it can do to government-controlled currencies. If gold or silver are not hoarded or used; then what can the public use as a reliable means of currency? There has been speculation for years if an international currency would ever turn into a reality.

Some bankers believe that it could be an answer to solve the economic problems that have occurred in the past, while others believe it may damage not just individual currencies managed by governments, but it may pose a serious threat to the world economy.

In 2008, a man named Satasho Nakamoto attempted to solve this problem. Nakamoto (who has not been seen in public since then) created a new virtual currency called Bitcoin. The entire system works on a peer-to-peer level and each bitcoin must be purchased from another person.

BitcoinCredit: Wikimedia Commons

The price of a single bitcoin can change on an hourly basis. So, a person would purchase one at a certain price and then hope that it retains its price so they can make a purchase with added value. Historically, the prices of bitcoin have been seen immense volatility and ranged between a few dollars to over a thousand dollars. Some individuals have decided to purchase a bitcoin and hold on to it over the long-term. These individuals firmly believe that the bitcoin can eventually reach hundreds of thousand of dollars or even possible a million dollars. Of course, this is all speculation.

So, why do people like this currency so much? It is an easier currency to use besides cash and a credit card because you only need an I.D. number and the transaction will be processed instantly. Furthermore, it cannot be stolen as easy as cash and there are no interest fees such as with a credit card.

Another reason that people love it so much is that around 2150 about 21 million bitcoins will be issued. Why is this so important? Pretty much this means that the value of bitcoins themselves will never become diluted. For example, the Federal Reserve or European Central Bank can keep on printing money indefinably. At least with a bitcoin (even though it is a long time away) the number of issues out there will eventually end.[1]

Many economists have mixed feelings on bitcoin. Paul Krugman and Brad DeLong have both criticized the currency and asked why it should act as a reasonably stable store of value versus other world currencies? Another critic of the currency is David Andolfatto, Vice President at the Federal reserve bank of St. Louis. He stated that bitcoin is a threat to the Federal Reserve System and other central banks. In the end, he believes that something such as bitcoin may only make these government entities even more powerful.

On the other hand, bitcoin also has some supporters. Bill Gates and David A. Marcus, the President of Paypal, both support bitcoin because it offers consumers another way to purchase products. Furthermore, they feel that people have the opportunity to purchase it at a cheap price and take advantage of moving money around at virtually not cost, especially when it comes to transaction fees.  

The major criticism that others have towards bitcoin is if it ever gets popular enough, it may eventually trigger tremendous competition. For example, what if a company or individual decided to start their own version of bitcoin. Moreover, suppose someone decided to create another digital monetary system that is simply better than bitcoin. What would happen to individuals that invested massive amounts of money into bitcoin?

So, can you go to your local store and use this method of payment? That is a good question because most places do not accept them yet. This is where it gets tricky. In some cases, even a simple coffee shop may have a minimum purchase when using a bitcoin (to protect themselves from price volatility). In some cases a person may want to purchase just a sandwich and a cup of coffee and end up spending the minimum that the coffee shop demands (up to $25). Fortunately, many online business are becoming more open to using this new currency system.


CoinsCredit: Wikimedia Commons

Bitcoin does not come without its critics because many people believe it is just another Ponzi scheme, speculative bubble or just another worthless virtual currency. Some critics feel that since the owners are anonymous a bitcoin will lead to fraud and black-market related crimes (which in some cases it already has). Moreover, people are questioning what it really is backed by especially if there is no single precious metal or government standing behind it. Time will tell if bitcoin really will become the next world currency. So far, it has survived for quite some time and is slowly gaining popularity throughout the world.