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a standard used for deferred payment. From the perspective of many institutionalists
though, it is lacking the one characteristic required for a “currency” like bitcoin to truly
become money: It is not yet generally accepted by economic entities in the performance
of the above-mentioned functions. It is widely accepted by societies that believe that
what ultimately gives money its value is that it is accepted by others in exchange for
something else believed to be of equal value. To become a true alternative currency,
bitcoins need to be accepted by a wide enough segment of society so that normal busi-
ness transactions can be undertaken. Short of such widespread acceptance, bitcoins will
always trade at a discount of its potential value. Currently, total currency in circulation
and deposits in the U.S. banking system (the money supply, M2) is roughly $11 trillion.
Assuming 21 million bitcoins are mined and they become an accepted currency, each
one could be worth as much as $524,000 (Wesbury, 2013).
It is estimated that only a miniscule one-hundredth of 1% of companies accept
bitcoin as payment for all transactions. If we were to apply the same proportion to
all spending in the economy (the gross domestic product), then bitcoin would be
worth only $52.40, compared with its potential of $524,000. This is consistent with
the notion that anything to be used as money will only get its value from the goods,
services, and assets that it can purchase (Wesbury, 2013).
Among the factors prohibiting bitcoin from becoming generally accepted as money
are the computer-related costs it requires. Bitcoins require computer storage space, the
electrical power to run the computer, a sense of security from hacking, and the compu-
tational power that allows for serious encryption on both sides of a transaction to make
users believe in its staying power and ability. There are firms that act as middlemen in
bitcoin transactions and firms that make a market in bitcoins, but because they are
new and have no reliable financial track record, many potential users are wary of using
them especially after the fall of Mt. Gox. Another factor working against bitcoin is the
perception that it facilitates illegal commerce particularly because it has been linked
with the website Silk Road, where it is alleged that online, anonymous, nontraceable
transactions for illegal goods along with legal goods take place. Thus, it can be said that
the bitcoin world is not friction-free or clean (Wesbury, 2013).
To become a real alternative currency, bitcoins must be recognized by a vast major-
ity of users including businesses and consumers. They must be deemed as safe as, if not
safer, than the currency issued by a central bank. And they must be easily transport-
able. Currently, because bitcoins do not meet any of these requirements, it is trading for
much less than its actual convertible U.S. dollar value (Wesbury, 2013).
Supporters of this virtual currency, sometimes called bitcoinistas, view bitcoin
as more than just a currency used to store value. For them, bitcoin is an open
financial platform that could house scores of types of data in a secure and universal
ledger. Mundane tasks from payments for cars and houses to online purchases of
tickets can be transacted in bitcoin if it can evolve into an independent, secure, and
reliable host of financial and personal information. And such is the hope of those
who now transact in bitcoins.
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