The future of bitcoin and cryptocurrency economy

Nowadays, more and more you can hear about such a financial instrument as the Cryptocurrency, but what is it? Cryptocurrency is a common name for various digital currencies, a characteristic feature of which is that none of them has a specific issuer. The very creation and control of currencies is carried out using a special technology called blockchain - a tool of the digital financial market that provides a high level of reliability of transactions. A blockchain is a chain of blocks of transaction information between the parties, which are subsequently formed into databases with information about the transactions completed.

The most popular type of cryptocurrency today is Bitcoin. The process of creating new bitcoins is called mining, it implies creating a complex cryptographic signature for the block. As soon as the signature is generated, an electronic coin appears in the system. The high cost of cryptocurrency is due to the fact that it takes much more time and power to find each new block than the previous one. A feature of the creation of Bitcoin is the issue of the distribution of the created Bitcoin. To address this issue, the Proof-of-work system was invented, which identifies the participant who has made the greatest contribution and fixes his ownership of Bitcoin (Сolored Coin). But even here another problem arises: at present, a single participant will not be able to single-handedly release Bitcoin, since he will not have enough power to calculate. However, the participants of the digital issue found a solution -individual miners united into a single pool, connecting their capacities and distribute parts of the found Bitcoin within the pool, in proportion to the contribution of each participant.

Since the advent of Bitcoin, there are constant debates about whether the modern economy needs it or not.

The main arguments for the existence of Bitcoin are:

• 1.    Security

• 2.    Decentralization

• 3.    Lack of commission for transactions.

• 4.    Anonymity

Let us consider each of the advantages in details.

Bitcoin security is due to the fact that it is not tied to any of the countries of the world, therefore it is not subject to influences of any particular home economy, such as unemployment, etc.

Bitcoin decentralization ensures the impossibility of hacking and disruption to the system, since there is no single control center.

The absence of the commission will be explained by the fact that the blockchain technology allows conducting transactions without intermediaries who previously charged a commission for intermediaries.

Anonymity - when making transactions using Bitcoin, it is impossible to track who is a party to the transaction. This argument is the most ambiguous, since anonymity has a dark side.

Opponents of Bitcoin, meanwhile, provide the following arguments:

• 1.    Implementation of illegal transactions using Bitcoin.

• 2.    Bitcoin storage

• 3.    The inability to cancel the transaction.

Anonymity in transactions allows you to use Bitcoin in the implementation of transactions that are contrary to current legislation.

At the present time, a huge amount of operation in the shadow segment of the Internet is performed using Bitcoin.

Bitcoin is stored in e-wallets. The problem is that if you lose the key of the wallet, it cannot be restored

In the case of incorrect payment using Bitcoin, overpaid amounts will not be able to return.

Today, one can hear criticism and fears that cryptocurrency in particular Bitcoin, is another financial bubble. Bitcoin itself is not confirmed by anything except the information and the work done to compute the cryptographic signature, and the information as such has no physical manifestations. The value of Bitcoin is determined directly by its supply and demand, by sellers who are ready to exchange their goods for it, by the miners who calculate it, by investors. In other words, a cryptocurrency exists as long as a certain circle of participants is interested in it. The number of people who mine cryptocurrency is very unstable. Explosions occur on the mining - potential participants, observing the success of others, start buying equipment and make crypto farms, because of what supply exceeds demand and the cost of cryptocurrency decreases, someone leaves the market, supply drops and the rate rises again. Because of this phenomenon, a large imbalance takes place, which leads to a sudden rise in prices for cryptocurrency. One can notice the concern of some governments about the fact that a cryptocurrency is a financial bubble that will bring instability into the existing balance of economic relations, and they are right it away. In economics, there is the concept of self-fulfilling prophecy. If people believe that bitcoin is a financial bubble, then sellers will stop selling goods for cryptocurrency, its emission will stop, and investments in it will be discounted.

So, at the moment you can not be exactly sure what will be the future of cryptocurrency. But the fact that it has already become part of the economy and is the prospect of the development of the payment system is impossible to deny. What awaits cryptocurrency development or collapse, we can’t know exactly.

Aibliography

• 1.    Bitcoin and the State // Bitcoin Wiki. URL: https://ru.bitcoinwiki.org/wiki/Bitcoin_and_state

• 2.    Wikipedia. URL: https://ru.wikipedia.org/wiki/

• 3.    What would a Bitcoin Gold Standard Look Like? // Motherboard.

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"Экономика и социум" №12(55) 2018