Bitcoin, which is the peer to peer system of making payments which came into the market in 2009, has an uncertain future after the collapse of Mt. Gox currency exchange. Bitcoin bears argue that the downfall of bitcoin is as a result of bitcoin’s limitations and this is also why bitcoin will not survive for a long time. On the other hand, bulls claim that this is just a minor blip and that bitcoin will come back much stronger and that it will go on to be the predominant currency in the world; stronger than the currencies which are currently dominating the market such as the euro, the dollar, the yen and other prominent currencies.
Bulls consider bitcoin to be comparable to gold and that the acceptance of bitcoin internationally would be equivalent to taking up the gold standard. This would be catastrophic. People who support bitcoin love it because bitcoin essentially prevents the central banks from making money. Just as there’s a limit to how much gold the central bank can have, there is also a limit on how many bitcoins can be created and this helps to prevent a scenario where money is issued in excess.
When referring to bitcoin we interestingly say that “bitcoins are mined”, not made or created; just as we would say concerning gold. Compared to gold, bitcoin has several disadvantages. For example the disappearance of 740,000 bitcoins in the Mt. Gox saga clearly showed that their security is not as air tight as the bitcoin supporters would want us to believe. It is fortunate that bitcoin had not yet been adopted as the world currency as such an incident would have been monumental and the eurozone and subprime crises would have been very minor in comparison.
That being said, it is important to note that the gold standard is not so immune itself to hacking. In the past gold coins were made to have some indicators that would help one to know how much a coin was worth in terms of the quantity of gold in the coin. The coins also commonly included an image of the king of the region. Fraudsters at the time however came up with a way of smelting off little amounts of gold from individual coins and an accumulation from several coins would be used to create new coins. This was not only done by private individuals but the kings would also do this to make themselves richer. The quantity of circulating bitcoins is regulated in a similar way as gold although both can be altered and their value changed. Bitcoins, just like gold, prevents the central bank from having a low interest rate policy when there is a recession.
Today the government does not really care about the legality of the bitcoin but it is more concerned with how the bitcoin can be used illegally in hidden payments and in money laundering. The freedom for carrying out transactions does not necessarily lead to money laundering in the same way that bitcoin does not necessarily ensure anonymity.