The rise and rise of bitcoin; how virtual currencies are taking over
Photo courtesy of iStock.
By David Midgley, head of operations, Total Processing
When virtual currencies were first released, I thought they were just for online gamers to make purchases in-game. As they developed though, I started to take notice and began to understand how revolutionary they were. I wasn’t the only one either, as uptake has continued to increase to the point that there are now even bitcoin ATM machines dotted across the globe.
I am not surprised the use of virtual currencies is now widespread, as they offer a range of advantages and benefits over more traditional forms of currency.
Using a virtual currency carries a number of security benefits. For example, much like when you use your credit card to buy something online, virtual currencies require authentication in order to access them. Given that many virtual currencies are also decentralized, this means they are also less susceptible to online fraud. Finally, as it is a digital currency, it affords security from physical world currency issues such as theft or loss.
Aside from the fact that it can’t be physically stolen, a virtual currency also has other advantages. For example, as it has a good level of online security protecting it, it theoretically can’t be lost or destroyed either. Unlike national currencies, virtual currencies are also borderless. Therefore, they can be used to pay for goods from other countries without having to worry about currency fluctuation, transaction fees or commission.
However, much like national currencies, a virtual currency can be adversely affected by geopolitical events. Virtual currencies have come under question as a potential source of terrorist financing, and I can see why. For example, ZCash is an open, permissionless system and requires zero-knowledge security. As noted previously, many virtual currencies are decentralized, too. Therefore, the perception in some quarters that virtual currncies help to fund terrorist activities are going to persist, as the same guarantees of privacy and untraceable transitions that make them attractive to ordinary folk who simply value their privacy also make them an ideal method for terrorists to move money.
This is why both the European Commission and the Australian government have announced they will be regulating virtual currencies as part of counter-terrorism measures.
When specifically considering bitcoin, it should also be noted that it is now traded like a commodity. While I don’t see it falling significantly in value any time soon, viable alternative virtual currencies have come to the fore in the last year or so. Therefore, as competitors gain traction in the market, it stands to reason bitcoin will at least lose some of its value as the demand for it lessens. As with any commodity, market forces still apply, and those who have invested heavily in bitcoin could make big losses.
In conclusion, bitcoin and other digital currencies have started to take over due to their added security benefits, their ability to be used across borders, and robustness to world events. Even in the face of regulations by both Australia and The European Commission, bitcoin has continued to hold its value to the point it can be viewed as a viable investment opportunity as well as a secure and borderless currency.
However, if the global superpowers of China, Russia or the U.S. begin to act, I would begin to worry about virtual currencies going forward. Given that much of this regulation has come about due to fears about terrorist financing, it would be advisable for virtual currency creators to be seen to find a way to prevent criminals from abusing their creations.
The infographic below provides a condensed history of bitcoin and the blockchain. Graphic courtesy of Total Processing.