What’s Up With Bitcoin?
By Ed Moy, MoneyNews.com
When the price of one Bitcoin surged to over $1,200, this bundle of electronic digits was worth almost 1 ounce of gold. There has been a lot of Bitcoin buzz in the last year, but after the generally positive Senate hearing recently, interest in Bitcoin skyrocketed before coming down to earth when the Chinese government restricted the use of Bitcoins.
As a former director of the United States Mint, I’m frequently asked my opinion about digital currency, and the cryptocurrency industry, especially Bitcoin. The most common question that I get is, “Is Bitcoin the currency of the future?”
The currency standard has evolved from precious metal-based to fiat over time. When the first coins were minted, their melt value was equal to their face value. Even the later invention of a paper bill was essentially a note that could be redeemed for precious metal equal to the bill’s face value. The last vestige of a precious metal standard died in the 1970s when the definition of the value of a dollar was changed to remove any reference to gold. The dollar is now fiat money, because no commodity backs it, just the “full faith and credit” of the United States government.
Further, the form of currency has evolved from coins to electronic currency. Governments, to facilitate commerce and trade, took on the role of determining denominations and standards, as well as the minting of coins. Eventually, government printed bills to supplement coins.
Then came checks and money orders, which cleared the way for transaction systems distinct from the physical transfer of currency. Electronic currency in the form of credit cards and debit cards were the logical next steps.
What comes after electronic currency? The next generation of currency may be digital currency.
The promise of digital currency is a new financial transaction system: cheaper, more efficient and secure transactions. No currency wars, exchange rates and arbitrage. There could be less friction and more transparency for every transaction.
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