The economist explains how does bitcoin work
Bitcoins are produced online and can be purchased by anyone. Online business can accept bitcoins as payment or the coins can be converted into dollars, euros, or other currencies. The value of your bitcoin s is stored in a heavily encrypted online wallet, from which you can send and receive the currency. While the makers of Bitcoin see it as a revolution of the global economy, there are dozens of ethical and policy issues surrounding this new currency, including: The anonymous nature of bitcoin activity makes transactions very difficult to track.
Bitcoin is not the only virtual currency out there. Will Bitcoin lead a revolution in currency, or go the way of the Zimbabwean dollar? Is Bitcoin A Safe Bet? How Does Bitcoin Work? Is It Time to Invest in Bitcoin? For this to happen, the more people who accept it as a means of payment because they trust that others are going to accept it, the better — the first appearance of the Nash Equilibrium in this blog.
From a global point of view, the U. Yet it is true that, from a more local point of view in the eurozone, the euro is clearly a better means of payment than the U. First, a bit of theory ;-. The history of money is the history of technological innovation that has the ultimate goal of improving three functions of money: The function of the means of payment of the currency improves when transaction costs decrease.
And the contribution of credit cards is not so clear because when losing anonymity and requiring a third party — the banking entity that issues the card or Visa — to guarantee payment, transaction costs become greater than those of paper currency. The function of the deposit value of money improves when the value of the money becomes more stable.
That is, when money is exchanged for goods at a stable price, without inflation or deflation, and when ownership costs go down and money becomes more secure. Recall, for instance, in the mids when at some gas stations in Minneapolis the price of gas varied if you paid in cash or with a credit card.
This price difference redefined the account unit. And, in respect to money security, one could argue that since they are nominative, credit cards represent an improvement over paper money.
And now about the bitcoin. Is it a good currency? Right now, it is probably better than zoquitos , but it is certainly a worse currency than U. And in the future? At the moment, Graphic 1, which I have taken from the second article in The Economist , shows that prices in bitcoins are not very stable.
What advantages does the bitcoin have? Supposedly, its transaction costs are less than those of any other means of payment. This assertion, however, should be qualified because networked computers take about 10 minutes to confirm the validity of transactions. For some, another advantage is that the bitcoin is a means of payment among equals peer-to-peer , which means that government intervention is unnecessary.