Bitcoin, Cryptocurrencies and The Money in the New Era - 3 -

 4. Trust, Belief and Regulation

As almost for all commodities or financial instruments, trust, belief and legal regulation have a very important effect in also the currency. If a currency has not legal infrastructure, public trust and belief, probably it will not live and be acceptable in the long term.

The reason why most of the people trust and believe the fiat money system is clear. We know that fiat monies are issued by the central banks and mostly they are backed by the states. Actually, issuing by a central bank and backed by a state make fiat monies “the real currency” for the humankind. Unfortunately, it is clear that cryptocurrencies don't have the public trust and belief enough yet. Due to fact that they are not backed by a state and not issued by a central bank people generally consider cryptocurrencies as an unreliable, even a speculative investment tool.

On the other hand, Bitcoin is very young now but it has possibility to become very popular sooner, then it will be able to be a rival for traditional fiat money system or other currencies which means that it could be better to create necessary legislation for cryptocurrencies now. Because later could be too late for this action to take. Even though Bitcoin is not yet widespread and isn’t as wide as other international currencies, taking consideration Bitcoin continues to increase its popularity, regulatory measures will be needed.

There are countries in the European Union that haven’t taken an official stance towards Bitcoins and other virtual currencies, but as Bitcoins continue to be more popular, it is very clear that we are going to see more countries begin to create their own policies in order to regulate virtual currencies. “Further action from other authorities can reasonably be expected in the near future” (European Central Bank, 2012).

 

5.Conclusion

As we have discussed before, it is well-known that Cryptocurrencies have a lot of disadvantages about being widely accepted for now at least. Generally, in financial subjects, making people trust you could take a long time. Due to fact that Cryptocurrencies-Bitcoin have high volatility of value, there is no state or bank guarantee in the back of it and it has not been widely accepted by the community yet, we could say easily that cryptocurrency cannot acquire the role of money for now.

On the other hand, it is an undeniable reality that cryptocurrencies have been attracting a lot of public attention in recent years. Especially western governments, universities and Non-governmental Organizations have been making researches about cryptocurrencies increasing day by day. Moreover, the number of people who invest on Bitcoin are mounting and everyone asks for information about Cryptocurrencies in almost every day to financial consulting firms or the banks. Bitcoins could be regarded as a bad alternative to traditional money with the scope of criminal activities, because virtual currencies would make easier to conduct criminal activity such as: money laundering, drugs trafficking, computer hacking and terrorism.

It is clear that, none of these activities is widespread or extensive to the use of Bitcoins. There are other bad or negative sides to using a virtual currency that do not have to do with criminality such as speculation, risky investment and issue of unpredictability. It is obvious that without necessary legal regulation and central bank or government guarantee, Bitcoin or all other Cryptocurrency users bear all the risks.

It should be accepted that keeping Bitcoins in a digital Bitcoin wallet will leave your virtual currency vulnerable. If we consider the issue in the scope of computer hacking for example. We would say that a digital wallet is weak to computer hackers. In order to attract people attention to this issue, The European Banking Authority has issued this warning to its citizens, “Exercise the same caution with your digital wallet as you would do with your conventional wallet” further urging users of Bitcoins, “not to store large amounts of Bitcoins in their digital wallets for an extended period of time” 

In conclusion, we could say that if cryptocurrency will gain the role of money one day in the future, it must serve also as functions of money also. Even it has some of functions of money like being a store of value, a unit of account and a medium of exchange, Cryptocurrencies cannot execute all these functions properly yet.

Despite the fact that the most known cryptocurrency-Bitcoin has a lot of popularity and a good number of investors, it is clearly known that it is not highly accepted yet all around the world.

After considering all these facts, especially in the short term, it seems that cryptocurrency could be an investment instrument for the investors who like taking risk instead of acquiring the role of money.

THE MONEY IN THE NEW ERA - 1 - Can Cryptocurrencies Acquire the Role of Money? -

 

1.Money and the Future

Humankind has used a lot of materials as money throughout history from barter economy until the modern economic system. It is known that from the start of civilization until today we have used precious metals, objects, paper and even sea shells as money. 

Along with technological developments and evolution of globalism there has been new inventions, discoveries and terms come into our daily routine life. Naturally, It is inevitable that these changes has emerged in economic system also. Especially after 1990's, technology and evolution of globalism bring to our life a new sort of money called cryptocurrency during the recent years.

In order to know or predict if any other object or system like cryptocurrency could be replaced with the fiat or paper money system or used as money in the future, first of all, we have to understand the role and usage of the money throughout the history. At this stage it is very crucial that we have to consider functions of money.

On the other hand, discussing future role of the fiat money system and cryptocurrency is a very complicated issue. The way of understanding these phenomena are related to consider closely and together globalism and technological developments. After considering these issues, it is very clear that trust must be regard as an important topic to analyse. It must be said that even you have a powerful concept and system for cryptocurrency, you have to make people and the community believe and trust it. Because there is no chance for a currency to live long unless trust and belief for it.

 

2.Most-Known Cryptocurrency -Bitcoin-

Even though idea of electronic money dates back to 1980s, Bitcoin just started in 2009 by its creator Satoshi Nakamoto. 

According to Douma (2016: 9) Despite the fact that the European Central Bank doesn’t take Bitcoin as a currency, it still insists that European Central Bank is responsible for the impacts of Bitcoin and its usage especially in Europe economic zone. “Virtual currency schemes do indeed fall within central banks’ responsibility as a result of characteristics s1453297 10 shared with payment systems, which give rise to the need for at least an examination of developments and the provision of an initial assessment” (European Central Bank, 2012).

At the same time with European Central Bank. the European Banking Authority also says, “the usage of the term ‘currency’ is misleading for several reasons, including the insinuation that it is therefore exchangeable against other currencies, which may not necessarily be the case” (European Banking Authority, 2014). From this we understand that the European Central Bank holds central banks responsible for transactions made by using Bitcoins (to protect people).