Photo courtesy of Antana on Flickr | http://www.flickr.com/photos/105644709@N08/

Does Bitcoin have the potential to change the financial landscape?

Last year the price of a Bitcoin was hovering at a little over $13USD. Fast forward a year later and it’s now trading at $800USD.  Many wouldn’t have anticipated the sudden spark in interest from consumers; such is the dynamic of the internet and the pace of technological change today.

Those who are bullish on Bitcoin (or,  digital currency for that matter) rave about the potential of Bitcoin to  disrupt the financial sector. One of the main benefits of Bitcoin are the low transaction fees, which make it a much more appealing currency for online merchants who already suffer from low profit margins. Low transaction fees also make micropayments a much more feasible business model for digital publishers (see Bitwall). Instead of relying solely on ads or subscriptions, small Bitcoin payments to read an article has the potential to be the norm.  The ad model de-couples the value that a news organization provides to readers and how they generate revenue. It’s created a conflict of interest of sorts, since news sites end up prioritizing over-sensationalism rather than quality and accuracy.

For now though, the instability of Bitcoin makes the aforementioned benefits infeasible. Such volatility is expected given the decentralized nature of the currency. Building consumer confidence in the currency takes time, and many are also speculating on the hundreds of other iterations of Bitcoin (Dodgecoin, Litecoin etc.),  further fueling the digital currency bubble. Whether Bitcoin or another competitor comes out of this bubble alive is a question to be answered in the near future.

And then there’s the politics. Decentralization is ideologically in line with the libertarian philosophy – many of the early supporters of Bitcoin were in fact libertarians. The battle for Bitcoin may very well end up being political, with governments seeking to regulate the currency on the grounds of providing stability. Such actions are already taking place in countries such as India and China where the currency was banned to prevent criminal activity. Governments might not be able to directly control the flow of the currency,  but some level of government intervention is possible which will usher in the old debate of left versus right.

The benefits of digital currency – decentralization, low transaction fees, and speed, are big enough reasons to consider it as a viable alternative to traditional currencies.  Whether it becomes relevant is an entirely different question, and will depend on the myriad of decisions from the government, corporations, and every day citizens.

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