The decentralized currency has risen to become a world value system in just over a decade …
On Halloween 2008, a month and a half after the spectacular collapse of the Lehman Brothers, Bitcoin began the monetary revolution that we are now witnessing. Bitcoin has shown that other monetary arrangements are possible with the help of technology: Money does not have to be controlled by a government or restricted to a sovereign territory.
Thirteen years later and after Bitcoin has repeatedly reached new highs despite bans and curses, Bitcoin has become indispensable. Perhaps not exactly as the “peer-to-peer electronic cash system” devised by Satoshi Nakamoto, but neither as wasteful speculative value without social value. Instead, Bitcoin can be the world’s accounting currency.
Bitcoin’s potential to be used as an international payment system has always been there. At its core, it has an iron decentralized infrastructure that can process and record transactions around the world, also known as the Bitcoin blockchain.
In about a decade and without a central authority coordinating efforts, channeling investments, or partnering, Bitcoin has created a global network that is readily available to anyone with access to a smartphone or computer. By comparison, it took Visa decades, countless business agreements, and a massive investment of money and talent to develop the amazing network that is used by billions of cardholders today.
The downside is that Bitcoin, the network’s own money, is still volatile. Bitcoin may be attractive to investors looking for higher returns, but it can be a barrier to those looking to pay rent and grocery shopping with their money. Bitcoin’s volatility thus limits its general attractiveness and thus its use as a widely accepted medium of exchange that can facilitate everyday transactions.
On the other hand, the very characteristics that give Bitcoin its volatility – the lack of hedging and a managing issuer – also offer what no other currency, whether public or private, can offer today: seamless transferability across borders and jurisdictions. A bitcoin can wander around the world via various digital wallets while a bank customer figures out how to initiate a foreign exchange transaction.
How can these contradicting properties be reconciled so that Bitcoin can function as a real world currency? First, by welcoming speculators instead of demonizing them. People and institutions willing to make a quick profit by buying and selling Bitcoin not only bring liquidity to the Bitcoin market, they also help build Bitcoin prices and (as counter-intuitive as it may seem ) to reduce extreme price fluctuations. The more people trade in Bitcoin, the more predictable Bitcoin becomes.
In addition, the Bitcoin network is inherently a transaction system, a “peer-to-peer electronic cash system”, and not just a safe place to store valuables. In that light, Bitcoin can be seen more as a monetary vehicle for global change, making it possible for anyone, anywhere, to send or receive money, rather than digital gold bars carefully hidden from the public eye.
The second step in improving the use of Bitcoin as a global currency is to have as many trustworthy exchanges as possible ready to buy and sell Bitcoin in different countries. Unhosted wallets are certainly invaluable to those looking for monetary privacy and who are also experienced enough to create and maintain their digital wallets and private keys well.
For the non-tech-savvy individual whose main goal is to make safe, fast, and cheap international money transfers and transfers, the most important thing is to find a reliable custodian who can help them meet their needs. And that’s what credible exchanges can do, especially those with an international footprint that are able to receive local currencies in one country, move Bitcoin across borders, and deliver local currencies to another country.
In these circumstances, Bitcoin could become a powerful option not only for international senders and recipients, but also for regulators. Since Bitcoin can be transferred from one digital wallet to another quickly and regardless of location, the sender and recipient do not have to deal with the volatility. In a liquid market and with exchanges that are open around the clock, you can buy and sell Bitcoin as soon as the international transaction is complete – that is, “in minutes” rather than days, as is the case in the current correspondent banking system.
Volatility would be reserved for investors and speculators in the countries of origin and destination who are willing to take more risks in search of higher returns. Speculation could therefore subsidize international payments. And the exchanges in both countries would take care of the transfer of Bitcoin and offer each counterparty their preferred risk, be it state money (sender and recipient) or Bitcoin (investors and speculators).
Regulators, in turn, would be able to track domestic and international money flows in real time regardless of their jurisdiction, as all transactions are recorded on the Bitcoin blockchain. By brokering exchanges that would be responsible for identifying buyers and sellers, cross-border payments with Bitcoin can offer a neutral, resilient and compliant alternative with lower transaction costs. No other solution, whether public or private, can beat this.