Bitcoin: Money for the Digital Age

 Is an intangible, decentralized global currency the answer?

This blog post examines my thoughts on Bitcoin using Shakhatreh’s article from 2022 as a springboard. Prior to researching this my knowledge of Bitcoin was elementary and I consider it an innovation worth understanding. 

Shakhatreh examines the benefits and risks involved in using, trading, and mining Bitcoin, as well as proposing safeguards for future use.

Like any technological innovation Bitcoin can be difficult for the layperson to understand. Terms like “blockchain” and “mining” in the virtual world embody new concepts, though building on financial practices that most people take for granted. As Shakhatreh (2022) notes, bitcoins are digital images representing value that peer-to-peer transactions have established. BBC Newsnight (2018) likens mining the bitcoins to finding your way through a maze–miners using (increasingly high-powered) computers solve puzzles and approve transactions to gain rewards and fees and increase their own bitcoin amounts. The transactions are approved by these complex calculations and grouped together to form a block, which upon completion is linked to the next block creating the blockchain (US News, 2024). The transparency of the transactions and the control distributed throughout the decentralized network, along with the anonymity of users presents both risks and rewards.

Like any regular established currency, the value is based on fluctuations in the market, but unlike a theoretical “gold standard” (the basis of US currency for example) or a powerful government backing, the value is based on global human behavior. Since the mysterious Satoshi Nakamoto created the source code and performed the first transactions (Britannica, 2024), trades and mining have increased the value from $25 (for the original “pizzas”) to the current peak value of $689 million (US News, 2024). Like any stock market investment, for the non-miners, it appears to bring high potential.

At this point you might be thinking, easy money, right? But as with any financial choice there are risks involved. Most commentators, including Shakhatreh (2022), focus on the potential for money-laundering, illicit schemes and other nefarious activities. Although the Russian bots enjoy reading my other blog it’s unlikely that the average person is looking for a new way to wash their cartel profits, and after all those with a low moral compass will continue to find ways to get around the law, whether facilitated by Bitcoin or not. The allure of non taxable income might be appealing to the general public in a Thoreau manner, though 

The average person looking to invest with Bitcoin would likely be curious about risks to their investment, and the number one risk that most people think about is hacking. Indeed a risk, Shakhatreh (2022) notes that some digital wallets have been looted in the past but this is potentially a risk to the leather one you carry in your pocket as well. More concerning, he notes that due to the low regulation, global nature, and anonymity (that can be seen as benefits), getting your virtual wallet drained, unlike your bank account, leaves you with virtually (pun intended) no recourse. 

So is an intangible, decentralized global currency the answer? Yes and no. Shakhatreh (2022) seems to conclude that it is the future and recommends a concerted effort to provide legal safeguards but that is as much a minefield as the system itself. Global cooperation at a political level has a dubious historical precedent. However, the digital age has increased globalization to the point where cryptocurrency makes sense in order to facilitate the movement of goods and services across borders. 15 years on Bitcoin has demonstrated some staying power, unlike its mysterious creator Satoshi Nakamoto (but that’s a story for another post).

References

BBC Newsnight. (January 24, 2018). How does Bitcoin Mining work? YouTube https://www.youtube.com/watch?v=cRxL2GKDU5E&t=425s

Edwards, J. (May 26, 2024). Bitcoin’s Price History. Investopedia. https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp 

Humayun, M. (2022). Bitcoin. Journal of Customer Behaviour, 21(1), 82–85. https://doi.org/10.1362/147539222X16620495972554 

Pinkerton, J. (March 21, 2024). The History of Bitcoin, the First Cryptocurrency. US News & World Report. https://money.usnews.com/investing/articles/the-history-of-bitcoin

Shakhatreh, H. (2022). Bitcoin: it’s concept, characteristics and impact on trade and global economy. Economics, Finance and Management Review, No. 1 (2022), 34-41. https://doi.org/10.36690/2674-5208-2022-1 (title typo original to source)