http://www.washingtonpost.com/business/a-primer-on-bitcoin-economics-internets-gold-standard-prone-to-wild-price-swings/2013/04/11/28b38a6a-a25d-11e2-bd52-614156372695_story.html
This article discusses the virtual currency phenomenon known as Bitcoin. It is a virtual currency created to be nigh immune to counterfeiting. In addition, it was created to be free of any and all government currencies. It as a slowly increasing supply, which is governed by algorithms, and has a maximum supply which it can reach (the supply grows more and more slowly over time). By the year 2032, 99% of this maximum supply will have been achieved. A currency of this form offers us an interesting opportunity to observe the functioning of a market such as this.
As can be expected, the price of Bitcoins is extremely volatile and spikes and crashes on a regular basis - which makes it a fairly poor store of value. In addition, due to the fixed nature of the supply - there is no way to stabilize the currency leading to large deflation and inflation with little predictability. The argument against the Bitcoin currency is the same argument that applies against implementing a gold standard and presents some support to the idea that policy should be active. In the end, money exists to facilitate transactions and raise standards of living in the economy while acting as a store of value - something that Bitcoin does not do very well.
This article discusses the virtual currency phenomenon known as Bitcoin. It is a virtual currency created to be nigh immune to counterfeiting. In addition, it was created to be free of any and all government currencies. It as a slowly increasing supply, which is governed by algorithms, and has a maximum supply which it can reach (the supply grows more and more slowly over time). By the year 2032, 99% of this maximum supply will have been achieved. A currency of this form offers us an interesting opportunity to observe the functioning of a market such as this.
As can be expected, the price of Bitcoins is extremely volatile and spikes and crashes on a regular basis - which makes it a fairly poor store of value. In addition, due to the fixed nature of the supply - there is no way to stabilize the currency leading to large deflation and inflation with little predictability. The argument against the Bitcoin currency is the same argument that applies against implementing a gold standard and presents some support to the idea that policy should be active. In the end, money exists to facilitate transactions and raise standards of living in the economy while acting as a store of value - something that Bitcoin does not do very well.
This is a very interesting article. I think that is a very cool idea and I'm not entirely sure how it works yet, but I think it will be difficult to get people into it. I think the older part of our population will never buy into this, it will be interesting to track this Bitcoin.
ReplyDeleteBit coins volatility will decrease and the currency will stabilize given time. While there is a cap set by algorithms, it is very unlike the gold standard due to the way technology has helped it. Bit coin is designed to be able to be split countless times. This means that it is essentially impossible to run out of bit coin, unlike gold which has a cap of how much can be mined. The current volatility that is seen right will stabilize as the currency is understood by more people and less people try to buy and sell bit coin like stock or an investment.
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