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The Future of Bitcoins?

Bitcoin, digital currency, is a first Web-based payment system that charges no or minimal fees for a transaction. Several advantages are associated with Bitcoin and offers a viable alternative to existing currencies. Bitcoin reduces transaction costs (Marc Andreessen, Why Bitcoin Matters. (Jan. 1, 2014), http://dealbook.nytimes .com/2014/01/21/why bitcoin Matters.)) Bitcoins is decentralized in nature and provides independence from banks and financial authorities1

 

While Bitcoins may have many positive attributes, volatility has been of the downsides with Bitcoins. Bitcoins is considered to be an investment or a speculative vehicle driven by Bitcoin exchange buyers and sellers.2 If Bitcoin usage grows, then Bitcoin volatility will drop and attract market and economic influence with more balanced investment vehicle.3 Bitcoin’s future will to depend on the popularity of its use. It has a classic network effect like Facebook (Marc Andressen, supra.).

 

Until recently, Bitcoin was considered to be a major medium of exchange if without legal obstructions by governments. (Bennett T. McCallum, The Bitcoin Revolution. CATO Journal 35.2 (2015).)) However, the outlook of Bitcoin seems unsteady with past incidents involving fraud investigation and board member, Mike Hearn, leaving the foundation. Mike Hearn was one of the developers dedicated to maintain the software and network of Bitcoins. But he announced his leave that Bitcoin has gone from transparent and open community to one dominated by censorhop and attacks on bitcoiners by other bitcoiners. The dispute raises questions on how the Bitcoin communities should be governed. Two camps divided into populists focusing on expanding commercial value and elitists concerned with its status as a challenger to existing currencies.   (Nathaniel, Popper. A Bitcoin Believer’s Crisis of Faith (Jan. 17, 2016), http://www.nytimes.com/2016/01/17/business/dealbook/the-bitcoin-believer-who-gave-up.html?_r=0.)) Former board members of Bitcoin foundation have been charged with crimes. Bitcoin Foundation has also been facing financial troubles in the past year.4

 

Furthermore, another legal issue that may determine the fate of Bitcoins is whether governments classify Bitcoins as currency for income tax purposes or as property. If treated like property or investment, owners must report any gain from change in its value. This administrative task and possibility of paying income taxes may make bitcoin difficult to use as alternative currency. (Adam Chodorw, “How should the world’s government tax bitcoin? (Jan. 11, 2016), http://www.slate.com/articles/business/moneybox/2016/01/bitcoin_s_future_depends_on_what_the_world_s_tax_authorities_rule.2.html) Bitcoin may become unattractive alternative currency for users if world tax authorities view Bitcoin transaction as both income and consumption tax liability.5. National financial regulation including taxation will play an important role in shaping the future of Bitcoins.6

 

 

 

 


  1. Rhys Bollen, The Legal Status of Online Currencies: Are Bitcoins the Future? 24, Journal of Banking and Finance Law and Practice 272, 276 (2013). 

  2. C. Baek & M. Elbeck, Bitcoins as an investment or speculative vehicle?

    A first look, 22 Applied Economics Letters, 30, 33 (2015). 

  3. Id. 

  4. Olga Kharif,  The Final Days of Bitcoin Foundation? (Dec. 30, 2015), http://www.bloomberg.com/news/articles/2015-12-30/the-final-days-of-the-bitcoin-foundation-  

  5. Id. 

  6. Rhys Bollen, supra.