Bitcoin and the evolution of money
Money has come in many forms over the years, from the use of cowry shells, cattle, grains and tobacco as primitive forms of money to the paper money we use in the present days.
From the primitive forms of money to the present, all of them have failed, some because of lack of durability (grains / tobacco), transportability (metals / gems), indivisibility (cattle), fungibility (cattle/ tobacco/shells), inflation (fiat money) or counterfeiting (a long term problem for all the currencies).
Bitcoin is a private decentralized digital currency with a fixed supply, a transparent monetary policy and driven by consensus. As a digital asset, Bitcoin has a high durability, portability and divisibility. In addition, perhaps the most innovative concept regarding Bitcoin is the “blockchain”, a publically reviewable ledger containing a verified record of every transaction, witch makes Bitcoin counterfeiting proof.
All these characteristics contributes to an increase acceptance of Bitcoin and accelerate the development of new products and services using Bitcoin as the main currency. You can find international remittance and payment services, debit cards, lending companies, among others.
Your transparent monetary policy and fixed money supply (A predetermined quantity of bitcoins is issued every 10 minutes approximately, with a reduction in supply by half every 4 years, up to the limit of 21,000,000 bitcoins) makes Bitcoin an excellent store of value.
Over decades gold has been a safe heaven to investors during economic crises periods, but looking closer the recent past events, investors seem to be changing their safe asset. When Cyprus economy felt in 2013 the Bitcoin price has skyrocket, when the chinese government devaluated the yuan in 2015 it makes the Bitcoin price rise again and when the Brexit shaken the markets around the world the Bitcoin price rise almost USD 100 in a single day.
Despite its high volatility, during the last months it’s price had less volatility periods then pound sterling and as its adoption increases, increasing liquidity, the price must become more stable.
In 2011 the 30 days volatility was around 16%, while today it’s around 2% using US dollars as base.
This low volatility is very important because it makes the currency reliable and attractive, not only for investors but for use as medium of exchange in trade as well.
We can’t ignore Bitcoin as an inclusive tool. According to World Banking and Mckinsey research, ¾ of world poorest population don’t have access to traditional financial services such as bank accounts, personal loans, debit and credit cards. Not just because poverty, but also because high taxes, distances and paper work. This same study correlates financial inclusion with GDP growth. It’s extremely hard to people to participate in the economy efficiently without being connected to these fundamental elements of global financial system. On the other hand, more and more people have access to Internet every day, current research projections indicate that half of the world population will be connected to the mobile internet by 2020.
Central Banks around the world have issued constant reports regarding Bitcoin and in 2014 R3 was founded. R3 “is a distributed database technology company. It leads a consortium of more than 70 of the world biggest financial institutions in research and development of blockchain usage in the financial system”. Couple this with the fact that consumers and traders are gradually introducing Bitcoin into their lives, it’s practically impossible not to imagine that cryptocurrencies will naturally replace paper money and will change completely the way we relate financially.