Many users of digital currencies, specially Bitcoin, express concerns relating to it being a fraudulent scheme designed to fool people into exchanging real currency for alpha-numeric sequences that have no actual value. But as we have observed value is generated through community trust in the system of the currency itself. The use of Bitcoins within the system doesn't assure any participant unfair gains or profits. the currency benefits from its decentralized nature which ensures that no individual or institution is at the core of it and positioned to unfairly benefit from its use.
The Bitcoin system is based on early reward efforts leading to long term community benefits. The first person to mine for Bitcoins were not at a significant advantage as the value of Bitcoins at the time was negligible or close to 10,000 BTC for a pizza(I don't know which one).At todays rates just 1 BTC could easily purchase 100 pizzas. But for the system to be functional in the early days the Bitcoins needed to be used in transactions that didn't value the Bitcoins very highly - a reflection of its nascent trustworthiness.
There was no government or agency that could artificially increase the value of the Bitcoin due to its decentralized nature. The value had to evolve from continuous usage and proliferation of the user network both in the digital and the real world. Bitcoins are now accepted in over one thousand locations across the world including real world locations such as cafes and restaurants.
Another unique aspect of this decentralized nature is that unlike other fiat currencies, Bitcoin isn't an inflationary currency with its value being dwindled by increasing supply, however it is the reverse. Bitcoin is predicated to experience deflationary forces over time due to its pre-determinedly limited supply. As Bitcoins are lost due to technical issues, accidents or seizure(government)the value of the Bitcoin will more rapidly stabilize and find a normal level. However there is also the possibility that with occasional and continuous losses due to random events, the supply of Bitcoins in circulation with always remain significantly lower than the total supply created. And unlike normal currency this defilation will effect the laws of supply and demand in unpredictable ways. The likely outcome is that the value of Bitcoins will increase as scarcity will relatively increase over time which will in effect cause aberrant trading behavior causing Bitcoin value to fluctuate.
In order to resist this possibility the system is designed for infinite divisibility of unit. In practice, while at one point 10,000 BTC could buy a pizza, today only a fraction of one Bitcoin is needed. By continuously being able to engage a lower unit of Bitcoin, a centicoin or an ucoin for trading the problem of deflation could also be managed. By dividing he Bitcoins to its lower denominations indefinitely usage could evolve in a practical and manageable way within the decentralized system.
No comments:
Post a Comment