Home > Free Essays > Economics > Currency > Bitcoins: Where Researchers Agree and Disagree
Cite this

Bitcoins: Where Researchers Agree and Disagree Research Paper


Introduction

Dramatic increases in the prices for bitcoins lead to endless discussions about their nature, benefits, their effect on the future developments in the financial sector, as well as possible adverse implications. Bitcoin is a new digital currency that was anonymously created in 2009 and was extensively studied by researchers to assess its efficiency. The key features include direct transactions that do not require the participation of banks and thus do not impose fees on monetary transfers. In this analysis, relevant research literature will be synthesized to find points on which authors agree or disagree as well as gaps in research that should be addressed in further studies.

Popularity of Bitcoin

According to Dwyer, electronic currencies have been gaining popularity in the recent decade and captured the attention of economics and computer science circles. Bitcoins currently embody a significant innovation in the sphere of e-trading as a “peer-to-peer network that validates transactions and finalizes them, with no trust in a central authority required” (Dwyer 90). Since there are no debilitating flaws in the design of bitcoins and other currencies such as litecoin, ripple, and others, their use brings such outstanding results.

What is important to mention is that bitcoin trading is unique within the context of modern financial market infrastructures, and the rise or decline of prices for them cannot be explained thoroughly. There is also a substantial variance of bitcoin prices between countries based on commercial prosperity or difficulties in the financial sector.

A notable feature of bitcoins on which researchers usually agree is that their exchanges are less costly tools for currency trading compared to other vehicles that consumers can use. For instance, when an individual possesses several accounts in different currencies, it usually costs less to carry out a digital exchange in a digital currency compared to obtaining a foreign exchange (Dwyer 90). Nakamoto also supported the use of bitcoins as a more efficient and less expensive method of transferring digital money (2).

However, the researcher pointed out an issue with such transfers: the payee cannot verify whether the owner did not spend the coin twice. A solution to this issue may be the introduction of a central authority that could check each transaction for double-spending; however, it is possible that the introduction of central authority could limit the freedom of bitcoin transfers that do not require the participation of a “mint” (Nakamoto 2). Thus, with regards to the cost-effectiveness and efficiency of bitcoins transactions, researchers agree that there was a need for a new method for verifying whether coins have not been double-spent.

Perspectives on Bitcoin Mining

When speaking about the topic of electronic currencies, it is impossible to avoid the discussion on bitcoin mining and how it is viewed within the circles of financial experts. Essentially, data mining is the process of bitcoin release, during which recent transactions are combined into blockchains for solving a computationally complex puzzle. Miners compete for adding the next chain of transactions to the blockchain, which consists of records of bitcoin acquisition and recently passed transactions.

Because of high profitability prospects, investors are opening up bitcoin mining farms for hashing data. Despite the profitability, researchers have agreed on the several challenges that make bitcoin mining more complicated today. First, it is essential to mention that mining is becoming more competitive each year. Due to technological expansion and the use of upgraded processing units and later Application Specific Integrated Circuits, companies have started to invest more into mining, subsequently increasing bitcoin’s value as well as demand for it (“Pros and Cons of Starting Bitcoin Mining Farm”).

Bitcoin mining is a contest in which several mining pools and miners work in conjunction to get a profit. It is expected that other cryptocurrencies will encounter the same challenge in the nearest future (Bonneau et al. 3). However, Dwyer disagreed with this statement presented evidence to mining generating negative net revenue in 2013, which means that there is no definite solution when it comes to predicting the profitability of bitcoin mining in the future (82).

Impact of Cryptocurrencies on the Economy

With the introduction and the rapid development of bitcoins and other cryptocurrencies, there is no need for involving governments or national banks in the control of financial transactions. This means that the power banks used to have over financial transactions is now shifting to the masses, which will eventually change the entire structure of the economy.

Also, the ability of banks to establish security and scrutinize individuals through keeping records of their transactions is slowly weakening due to the challenge such independent currencies as bitcoin currently present. Therefore, if transactions of cryptocurrencies are adopted on large scales, governments will have to politicize money to maintain their control over the financial sector.

Another widely accepted implication of bitcoins for the economy is associated with the development of new markets. Cryptocurrencies have already contributed to the creation of new kinds of markets that do not have a central authority. It is expected that cyberspace will continue expanding, with electronic currencies rising in popularity and someday becoming superior to traditional money that is currently used.

On the other hand, the expansion of new markets can also relate to the black market and the dark web. The use of cryptocurrencies for purchasing illegal items such as drugs or weapons can only facilitate the growth of the illegal sector since there is no possibility to track independent transactions (Kumar). Subsequently, the use of bitcoins can empower illegal transactions across the world and contribute to the increase in cybercrime.

It is important to mention speculations as another possible effect of bitcoin and other electronic currencies on the economy. Because the price on one bitcoin fluctuates significantly, and they are expected to change in the future, possibilities for speculators are endless. Similar to share trading, trading bitcoins will increase in popularity and grow in the future. In contrast to investing in stock markets, investing in bitcoins is less expensive. For instance, a share on Facebook may cost a person around $200; a fraction of a bitcoin can be bought for much less, which also presents more opportunities for speculators.

In conclusion, it is important to mention the views on the future of bitcoin as a currency differs between experts. A question of whether bitcoin will remain a gamble or becomes a safe investment remains. For instance, Dave Birch, an electronic payments expert, suggested that bitcoin trading is not an investment but rather a gable due to its volatility (Hickey). Marc Warne, a founder of bitcoin exchange, also stated that the constantly changing environment meant that investors should not store large proportions of their wealth in bitcoins (Hickey). A contrary opinion is that the continuously growing demand for bitcoin as a currency will drive prices up and make more people interested in investing.

Concluding Remarks

The research on the nature of bitcoins and their effect on the future of the financial sector has shown that the topic requires further investigation. Specifically, there is a gap in the literature as ways of securing transactions without involving a central body with unlimited governing powers. As mentioned by Bonneau et al., issues with computer security present massive challenges for consumers (1).

In his article “The Economics of Bitcoin and Similar Private Digital Currencies,” Dwyer did not explore the issue of transaction security, which points to the need for future research on this issue. Moreover, the issue of bitcoin volatility should be investigated in further detail. Currently, bitcoin price fluctuations depending on market dynamics, and since no political involvement is present, predicting the possible increases or decreases is difficult.

Overall, the majority of experts have agreed that bitcoin and other cryptocurrencies presented outstanding opportunities for both businesses and individual consumers. Despite such negative implications as the possible expansion of the black market, it is expected that the use of bitcoin will continue to increase, leading to the overall increase in the popularity of other cryptocurrencies. Also, the lack of governmental or any other type of control over bitcoin transactions presents some challenges associated with security. Because of some challenges, the future of bitcoin is still unknown; however, the public interest is growing and may contribute to the complete transformation of the global economy as it is known today.

Works Cited

Bonneau, Joseph, et al. “JBonneau, 2016. Web.

Dwyer, Gerald. “The Economics of Bitcoin and Similar Private Digital Currencies.” Journal of Financial Stability, vol. 17, no. 1, 2015, pp. 81-91.

Hickey, Shane. “The Guardian. 2017. Web.

Kumar, Aaron, and Christie Smith. “RBNZ. 2017. Web.

Nakamoto, Satoshi. “Bitcoin: A Peer-to-Peer Electronic Cash System.” Bitcoin. 2017. Web.

Cointelegraph. 2016. Web.

This research paper on Bitcoins: Where Researchers Agree and Disagree was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Research Paper sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

301 certified writers online

GET WRITING HELP
Cite This paper

Select a referencing style:

Reference

IvyPanda. (2020, October 29). Bitcoins: Where Researchers Agree and Disagree. Retrieved from https://ivypanda.com/essays/bitcoins-where-researchers-agree-and-disagree/

Work Cited

"Bitcoins: Where Researchers Agree and Disagree." IvyPanda, 29 Oct. 2020, ivypanda.com/essays/bitcoins-where-researchers-agree-and-disagree/.

1. IvyPanda. "Bitcoins: Where Researchers Agree and Disagree." October 29, 2020. https://ivypanda.com/essays/bitcoins-where-researchers-agree-and-disagree/.


Bibliography


IvyPanda. "Bitcoins: Where Researchers Agree and Disagree." October 29, 2020. https://ivypanda.com/essays/bitcoins-where-researchers-agree-and-disagree/.

References

IvyPanda. 2020. "Bitcoins: Where Researchers Agree and Disagree." October 29, 2020. https://ivypanda.com/essays/bitcoins-where-researchers-agree-and-disagree/.

References

IvyPanda. (2020) 'Bitcoins: Where Researchers Agree and Disagree'. 29 October.

More related papers