Bitcoin Currency: Proposal Essay
It is no longer debatable on the usage of bitcoin as a currency. After all, money is what people, the public, agree to use as a medium of exchange, and bitcoin is one of it (Eyal & Sirer, 2018). In the past few years the value of bitcoin has skyrocketed to unprecedented levels, and by 2018 there was more than “228,932 active Bitcoin transactions per day, over 22 million wallets [holding] Bitcoin” (Dickson, 2018, p.2). However, questions loom over its proclaimed independence, or non-regulation, including many potential promises, and as such, it is crucial to control the risks associable with bitcoins since people are increasingly investing in it.Dickson (2018) points out that the advent of bitcoin coincided with the 2008 financial crisis. The crisis has been blamed on the greed and recklessness of America’s financial institutions on The Wall Street, and bitcoin can be viewed as part of anti-capitalism sentiments that had been growing over the years. A bonus satisfaction for its proponents, says O’Sullivan (2018), would be its heralding of the collapse of the western institutions of capitalism. Todorov (2017) opine that bitcoin’s feature of independence from mainstream regulation puts at no risk of losing money to the capitalistic institutions, an ‘underlying incentive’ that appeal to investors.
As much as the internet and publications are imbued with articles on the merits of bitcoin, proclaiming its great promises, equally are many dissenters who are predicting its collapse. Many sew parallels between the bitcoin bubble and the dotcom bubble in the early 2000s, which ultimately burst. Eyal and Sirer (2018), for instance, believe it is just as the mainstream financial market, which is driven by greed and inequities, such as when top miners collude in their favor, an aspect that Sompolinsky and Zohar (2018) refer to as ‘mining pools.’ It could be that bitcoin’s independence, non-regulation feature, which is its primary appeal, is also its main danger, leading many to consider regulation after all, albeit a unique regulation system.
Part II: Annotated Bibliography
Eyal, I., & Sirer, E. G. (2018). Majority is not enough: Bitcoin mining is vulnerable. Communications of the ACM, 61(7), pp.95-102
Eyal and Sirer’s article focuses on the vulnerabilities of bitcoin mining. To the two authors, and as implied in the title, the ‘majority’ premise of bitcoin network (based on Blockchain technology) takes power from any one individual, it does not safeguard against collusion and, therefore, having the cumulative power of control to a few people. As a solution, the article suggests a new protocol that “prohibits selfish mining by a coalition that commands less than ¼ of the resources” (Eyal & Sirer, 2018, p.95). But then this is, in fact, a call for bitcoin regulation, hence adding to the debate on the need to regulate bitcoin.
O’Sullivan, A. (2018). Ungoverned or anti-governance? How Bitcoin threatens the future of western institutions. Journal of International Affairs, 71(2), pp.90-102
O’Sullivan examines how bitcoin potentially threatens the future of western institutions. The article particularly points out the independence of the bitcoin network from the traditional monetary and trade controls. O’Sullivan argues that bitcoin undermines dominant methods that have been used to control social behavior through financial behaviors. Notably, as examples of these controls, the article mentions capital controls as well as prohibitions against money laundering. The above example reveals the premise: that disruptions in the capital market may not necessarily be as positive as many may expect, especially since even these controls have been unable to prevent money laundering and other financial market vices.Ryznar, M. (2019). The future of Bitcoin futures. Houston Law Review, 56, pp.539-563
Ryznar studies the potential danger posed by bitcoin futures (referring to contracts to buy or sell a specific quantity of bitcoins in the future and at a specified price). The article judges that the non-regulatory nature of bitcoin will pose risks of price manipulation and as a result the volatility of bitcoin. As such Ryznar believes that regulation might be necessary. In the same note, Ryznar also suggests what such control could look like by pointing that it cannot, surely, be like the traditional regulation. The article highlights the fears still looming over bitcoin and bitcoin transactions and explores the uniqueness of bitcoin regulation, if/when it arrives.
Todorov, T. (2017). Bitcoin – an innovative payment method with a new type of independent currency. Trakia Journal of Sciences, 15(1), pp.163-166
Todorov’s (2017) article is a comprehensive introduction to bitcoin. It covers what bitcoin is, its underlying technology such as Block Chain, and the essence of its independent operation. The latter rests on the advantage of majority users, or regulators, which means that, theoretically, no one individual amasses enough power to gain over the rest. The article also covers essential terms associated with bitcoin transactions: mining, bitcoin wallets, and bitcoin exchanges. Despite highlighting the merits of bitcoin over traditional currency, Todorov (2018) also touches on its risks, particularly the currency’s speculative nature, hence its volatility, as well as a widespread public reservation.Sompolinsky, Y., & Zohar, A. (2018). Bitcoin’s underlying incentives. Communications of the ACM, 61(3), pp.46-53
In their article, Sompolinsky and Zohar explore the incentives for bitcoin’s appeal. Like Todorov (2017), this article also mentions the ‘majority’ basis (peer-to-peer [P2] network) of bitcoin’s operation and governance. Sompolinsky and Zohar also point out the freedom of entry to the bitcoin network, as well as the security of the network against manipulations. The article also cites bitcoin’s self-regulated equilibrium and mining decentralization, among others. The authors highlight the danger of mining pools (collusion between miners) and potential attacks as well as deviations from rules. Perhaps this implies the need for some form of regulation.