Bit Coin, Assessment Example

Innovations in information technology are constantly surfacing in the world. Such technological advances are driving the economy forward in making business enterprises run more sufficiently. The financial markets are always trending towards investments that will increase their stock shares and sustain their marks on global stock exchanges. None of this is possible without currency. Whether it is the US dollar, British pounds, Japanese yen, or Mexican pesos, currency is the blood of business that is in a never-ending circulation. As information technology has continued to advance in the world, currency has gone digital. Digital currency is use by virtually all parties public and private. Credit cards, electronic checks, and even mobile money via smartphones are the most popular forms of digital currency among individual parties. Major financial institutions such as Bank of America and Wells Fargo manage clients’ bank accounts and host their digital currency balances. Trade debtors or cash handling organizations such PayPal and Western Union manage cash on hand accounts and are often used for online shopping. Though these trade debtors do not distribute loans or pay interest on accounts such as public financial institutions. Such digital currencies are government regulated however, and subject to accounting audits as well as taxes in pertaining tax jurisdictions. A new form of digital currency however, is on the rise. This currency is not regulated by any government, not subject to taxes or audits, and can even be transacted anonymously. It is a single unit of currency and does not need to be converted when transacted among differing countries. This rising digital and universally traded currency is called Bit Coin.

Often referred to as the cryptocurrency due to it being operated through computer science cryptology, Bit Coin is a primary attraction for investment bankers, businesses, and even the Internal Revenue Service (IRS). How the currency works is not fully understood in detail among the general public whom are recently exposed to it. However in terms of economic functionality, it is an easy to understand concept not much different from how traditional currency is transacted. Bit Coins can be used to make digital purchases from any individual or business that accepts them as a method of payment. (Yellin, 2014)

The Bit Coin currency is not centralized by any bank, and no form of government has established or even approves any financial value it may carry. They can be viewed as an unofficial form of currency, because despite not being supported by any government or financial institution, enough parties trade, spend, and accept them as a form of payment for goods or services. Bit Coins will remain a part of the global economy for as long as holders of them continue to believe that they may be used to acquire goods or services. (Yellin, 2014)

On the technical component of how the Bit Coin is operated, it uses a method of cryptology known as encryption. Encryption in information technology is a type of digital signature that maintains privacy between the trading parties. It was originally developed for the use of private messaging in electronic messages that contained sensitive or classified information. This digital signature in the form of encryption gave verification to the recipient that the message had truly originated from the given sender and that it had not been manipulated or tampered with during transit. Then in 2009 this same software was integrated into the digital currency that is now Bit Coin. Assurance that Bit Coins are not duplicated or reused by the same spender all rely on the mathematics of the computer code that operate it. When a user spends Bit Coins on the internet, they use a unique pass key to authorize a transaction to the web of the other Bit Coin users showing that given amount of Bit Coins have been spent to a seller. The Bit Coin software then authenticates this transaction showing all users that the amount has been deducted from the spender’s account and credited to the seller’s account. (Economist, 2013)

Once a transaction is made, it cannot be reversed even if the seller has defrauded their buyer. The only way to recover losses from fraud is to locate the seller which is virtually impossible being that Bit Coin users are mostly anonymous. (This is often the case when users make transactions through the deep web when purchasing illegal contraband that may not even exist.) The privacy key is the only way to make any type of Bit Coin transaction. If the user’s privacy key is lost from a computer crash or virus then it is gone for good. This is because the privacy key is not simple a password that a user can write down, it is a unique algorithm coded for the sole purpose of a digital wallet that manages Bit Coins. (Economist, 2013)

Bit Coin is progressively having its’ impact on the economy. Cameron and Tyler Winklevoss, Bit Coin entrepreneurs and former for unofficial Facebook engineers, vouch for Bit Coin by suggesting that it could the solution to the current economic issues in the global currency market. Additional Bit Coins are introduced to the digital economy by what is called mining. This happens when Bit Coin network computers engage in a digital problem solving race against each other. When the first computer running on the Bit Coin network renders a solution to the complex algorithmic problem, it is then validated by all the other computers. This validation is what establishes the new value of the Bit Coin and represents its unique process of inflation. (Carmody, 2013)

Bit Coin continues to make its trend-setting impact on the global economy, but its role will have the greatest effect on the international working force. Having a current value of $247 USD to 1 Bit Coin, transactions are not laced with any transaction or conversion fees. Workers living abroad, both blue and white collar, are able to transfer money to any country in the world without having to deal with the fees imposed by what Western Union would charge. Within the next few years, people living in third world countries will be able to make use of Bit Coins as it gives them a form of a bank account that they can use to globally interact with other parties for purposes of business. To take matters even further, Bit Coin may even set the new benchmark for central banks and financial institutions, as they would have to conform to the value and transaction fees of Bit Coin in order to sustain their position in the economy. (Carmody, 2013)

Bit Coin is still relatively new, and its true potential still has yet to be unfolded. It will inevitably change the financial market and the global economy in ways that show the power of information technology. It is not a good or bad thing; it is simply a powerful thing.

References

Carmody, T. (2013, October 15). Money 3.0: How Bitcoins May Change the Global Economy. Retrieved April 2, 2015, from National Geographic: http://news.nationalgeographic.com/news/2013/10/131014-bitcoins-silk-road-virtual-currencies-internet-money/

Economist. (2013, April 11). How does Bitcoin work? Retrieved April 2, 2015, from The Economist: http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-how-does-bitcoin-work

Yellin, T. (2014). What is Bitcoin? Retrieved April 2, 2015, from CNN Money: http://money.cnn.com/infographic/technology/what-is-bitcoin/