While browsing the internet , I came upon am interesting concept( which is now a reality) called as Bitcoin. According to the site( shamelessly lifted from it :)
Bitcoin is a peer-to-peer digital currency. Peer-to-peer (P2P) means that there is no central authority to issue new money or keep track of transactions. Instead, these tasks are managed collectively by the nodes of the network. Advantages:
- Bitcoins can be sent easily through the Internet, without having to trust middlemen.
- Transactions are designed to be irreversible.
- Be safe from instability caused by fractional reserve banking and central banks. The limited inflation of the Bitcoin system’s money supply is distributed evenly (by CPU power) throughout the network, not monopolized by banks.
There are a number of sites that trade in this currency. This is an astonishing development whose effect will be felt in years to come. Bitcoin is independent of central banks of the world and there is no hard cash involved. To me it is a ‘Disruptive Technology’ . It will change the way we look at and use currency in future. Here are the impacts I see and frankly I am not able to conclude what will ultimately happen. But it is a good idea to speculate
- Death of cash ?
- Free money ( well not exactly )
- Impact on Banking industry
- Impact on international commerce
Maybe. There are a lot of transaction that happen in cash and electronic money has not been able to remove the usage of cash . In troubled time , people would like to see cash in hand and not anywhere else. But if the money is guaranteed as it is distributed on the internet, people might feel comfortable keeping some money digitally too.
In order to earn bitcoin, you need to install a client application and you start accruing bitcoins. Now that may not amount to much but if your bitcoins in currency terms are higher than the cost of running a computer, you are earning money without doing anything
Would you imagine, someone calling you from the bank “Sir, we have 2000 Bitcoins, would you like to convert them to cash?. As I see it the whole industry might need a different approach to banking. Because your bank is in your computer( in forms of encrypted files), what will banks sell now. Would it be a mutual fund of bitcoin?
I feel there will be massive changes to the international commerce. Since the money could be traded without borders, without any capital controls. Bitcoin will be the universal currency and there will be no artificial pegging of currencies. How would it impact the international commerce? Difficult to speculate.
These are just speculations and should not be taken very seriously. I am just trying to imagine how the world would look like when Bitcoins will be at par with the currencies. That phase might not happen in our lives but if it does would be interesting to watch.