Tag Archives: Currency

Bitcoins Simplified

The bitcoin is a new type of currency that’s baffling to some, but the principle is already in use. We are already comfortable with swapping currency electronically through direct deposits and electronic bill pay — watching our bank account goes up and down with each transaction. We accept that currency exists even though we don’t hold it in our hands. Think of bitcoins in the same manner.

Bitcoins are a global, market-legitimized system designed to pay for goods and services outside government control. Bitcoin supporters hope this electronic system will replace government-legitimized currency, however no government accepts it as payment for taxes or debt. In reality, Bitcoins take control away from currency-issuing agencies, making it unlikely to replace our current system.

Bitcoin creators set total issuance at 21 million, with 11 million currently in circulation. One might think this limited virtual currency will increase in value with scarcity, but experience shows that limiting currency supply causes deflation in the cost of goods and services, rendering the currency worthless. Not the best recipe to support the lofty goal of replacing global currencies.

Some issues with bitcoins:

  • The will and means to exploit them exists, despite perceived anonymity in their use

  • A bitcoin transaction is permanent and consequences long outlast that of cash purchases

  • There’s a perception it’s safe from plagues of current monetary systems because it is virtual

  • Hackers have already caused major fluctuations in the bitcoin market

Proponents of bitcoins admit they are experimenting on a grand level and claim issues have been only one-off. As with most trends, there is a curiosity, but users will probably be hard-pressed to convince governments to accept bitcoins in lieu of nationally recognized tender. Unless bitcoins solve a major problem for consumers, it is unlikely to become more than a fad.

Ron Ray

Ron Ray is Owner/Chief Executive Officer of Financial Professionals, a Dallas-based financial staffing agency. Since 1981, Ron has worked with a variety of banks and banking professionals to ensure they are working with the best talent.

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