Software — not gold, silver, or paper — just might be the future of global currency. It’s a bold statement that’s starting to resonate within government corridors around the world. As recently as a few years ago, the “fad” of Bitcoin could’ve easily been dismissed. Today, this is no longer the case.
Known as a cryptocurrency, Bitcoin and other peer-to-peer virtual currencies, have achieved widespread global acceptance within emerging markets including in China, India, Brazil and Kenya. Within these countries, Bitcoins are considered by some as safer long-term investments than either stocks or the national currency.
While Bitcoin offers a number of attractive benefits, there are some downsides that shouldn’t be dismissed. Some of the main factors driving the growth of Bitcoin include the following:
- Distrust in national banking systems and concerns over both inflation and their long-term stability.
- Conducting commerce, or remitting money to an immigrant’s home country via Bitcoin, means that there are no costly currency conversions and high transaction fees.
- There is no government oversight, which means that taxes and other forms of regulation cannot be applied to Bitcoin as they do to transactions conducted via other methods of payment.
These are just a few very appealing reasons businesses and individuals within emerging markets are turning to Bitcoin. It’s easy to use, it’s non-taxable and it’s lower cost. In countries where levels of distrust in government and financial institutions are high plus traditional high fee financial services have not scaled to meet the needs of all people and businesses, it’s easy to understand why. While the attraction is high, there are considerable risks Bitcoin users face, including:
- The currency is still very volatile and value is still influenced by external events. In 2013, over half of Bitcoin transactions were conducted within China. Over 100,000 coins were being traded daily on BTC China. Concerned, the Central Bank of China issued a decree in December announcing that Bitcoin was “not a currency” and the value of Bitcoins plummeted.
- Hackers and scammers are out there and today consumers have no government protection for their Bitcoin holdings.
- Acceptance and utility – how useful is Bitcoin as a day-to-day currency for purchases.
On Sept. 9 at noon, I will be discussing the growth of Bitcoin within emerging markets and what it means for the future of global currencies. I invite you to join the discussion on Twitter and to share your experience and thoughts.
Image Source: Wikimedia Commons