Bitcoin is a digital currency that was created 9 years ago by an anonymous person under a pseudonym. Bitcoin uses a distributed ledger called Blockchain, which is not operated by a centralized authority, unlike government-issued currencies. This prevents the long-standing problem of double-spending in digital money.
Users who participate in the Bitcoin network and verify the transactions are called miners and are rewarded for their work. The price of Bitcoin rose from a little under $1,000 to close to $19,000 in 2017 alone.
There are many Bitcoin supporters who believe that digital currencies will replace physical currencies in the future. The popularity of cryptocurrencies comes from the fact they allow a no-fee payment system, they can be exchanged for traditional currencies, and they’re anonymous and safe. In fact, countries like Venezuela and Zimbabwe, where traditional currencies are hyper-inflated, show increased popularity of Bitcoin because it’s value is more stable than the value of their national currencies.
Some believe that, even if cryptocurrencies aren’t the future, Blockchain is. With its decentralized nature, resilience to hacking and low transaction costs, the technology can be used as a national, centrally banked currency.
Even though Bitcoin is very popular at the moment, it has some limitations which stop Bitcoin from becoming the future of currency:
Regulatory Risks: Because of the anonymous and decentralized nature of transactions, Bitcoin can be used for black market transactions, money laundering, tax evasion and weapons procurement. This leads to many governments trying to regulate, restrict or ban Bitcoin transactions (China, South Korea).
Volatility: Cryptocurrencies have been highly volatile. The value of Bitcoin can be a dollar one day and then $12,000 the other. It acts like a stock, not like a national currency that is expected to be relatively stable. So, like a stock market, it can crash (which is something that has already happened).
Time: Bitcoin transactions take time. They take something between several minutes to an hour, which makes them slower than bank transactions which can typically be done in seconds.
Technological limitations: Given the fact that Bitcoin is based on a relatively young technology, it faces several technological limitations. One’s digital fortune can be erased by a computer crash or a hack. These limitations will probably be overcome in the future, as the technology develops.
Complexity: Cryptocurrencies, especially Bitcoin, are very popular but users of this technology are still a minority. The technology they are based on is not easy to grasp and is understandable only for highly technologically adapted people.
All in all, for Bitcoin to be the future of currency, it would have to satisfy complex criteria. It would have to be based on a complex enough technology to avoid frauds and hacks but a simple enough technology for an average user to grasp. It should preserve anonymity but still track mischief. Current cryptocurrencies, including Bitcoin, are still not able to overcome these issues, but the success of the future cryptocurrencies is to be expected.