Perfect Money




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  • 2014-03-24 19:29:54
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“Are we standing on the edge of a revolutionary advancement in banking or are we simply replacing one imperfect system with another?” This is a question with which all economics experts are struggling. 

Like many new systems that gain popularity fast, Bitcoin is a subject generating excitement, rumors and speculation. Blagovest Belev – the managing director at Tavex Gold & Exchange, revealed the truth and myths behind the digital cryptocurrency during his presentation on Thursday,March 20th  at the Balkanski Academic Center.

Bitcoin can be described as an entirely new global monetary system that offers both currency and a payment network accustomed to it . The idea was introduced in 2009 by anonymous creator/s operating under the name Satoshi Nakamoto. In order to use Bitcoin, one needs to download a “wallet “software that acts as a bank account. It stores a secret code on your computer and enables sending and receiving Bitcoins from other wallet-holders anywhere in the world. Bitcoin therefore works as a peer-to-peer network upon which account holders can transfer the digital currency between accounts instantly.The central concept behind the system is called “Bitcoin mining”-the process of adding transaction records to the app’s public ledger of past transactions, called block chain . In this way legitimate transactions are confirmed, while attempts to re-spend coins that have already been used is prevented. Events from recent six years exposed the imperfections of the current monetary system and the desperate need of a new one.

“The whole banking system is like a house of cards, which is based on trust,”said Belev.

Money should possess several qualities- being scarce, durable, divisible, fungible, and portable. That is how gold and silver became a source of money. Eventually, they were replaced by paper bills that represent the amount of gold in the bank reserve. As time passed more money were printed than the actual amount of gold extracted, which created a fraction.

“This is how the current banking system is actually working. We think that we have our money in the banks, but it’s not there,” explained Belev.

This is where Bitcoin becomes handy. Firstly, it possesses the quality of regular money. Secondly, it is decentralized and does not depend on government regulations. Thirdly, according to the proponents of the idea, it will not cause inflation, since only 21 million Bitcoins in total will be produced.

“Bitcoin is an attempt to create perfect money,”said Belev.

The question how perfect the system actually is remains dubious. There are certain security issues and volatile price swings, which are difficult to predict. The system uses hardly any private information. Each account is secured by what's known as "public key cryptography." There are both a public key and a private key - both of which are long strings of numbers and letters. The “wallet” software recognizes the private key. In order to send money one needs to know only the public key of the receiver. Therefore, as long as the account holders protect their private keys, their funds will be secure.

Another problem with Bitcoin is that it is considered a “bubble.”

“Everything that gains value quickly seems to be a “bubble” and media allows this word. Gold was a “bubble”, stock market is a “bubble”, and real estates are “bubbles”. By definition a “bubble” is the price of an asset being so much higher than the fundamental value that eventually it must go down. Is Bitcoin a “bubble”? I personally don’t thinks so, “said Belev.

The future development of Bitcoin will show whether it is in fact the answer for creating a perfect banking system. The whole lecture was shot by the AUBG Talks team and will be available online soon.