Table of ContentsIntroductionDefinitionClaimsMechanismPopularityBanking SystemClassification of MoneyBanking vs BitcoinPredicted Future of Banking IndustryConclusionIntroductionA brief definition of Bitcoin is that it is a type of virtual currency. However, there is much more to bitcoins and reasons why they have become more popular. Some people prefer Bitcoin because it allows them to remain anonymous during monetary transactions. Other people simply support bitcoins because they don't trust banks. Whatever the reason, a growing number of people seem to believe that bitcoin is a superior choice to banks. However, evidence shows that the Bitcoin market is too volatile and insecure to be considered as an alternative to banking, which may explain why Bitcoins are not accepted as payment everywhere. The following is a discussion based on the nature of Bitcoin and its potential to dethrone US central banks. Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”?Get the original essayDefinitionAccording to Segendorf (2014), bitcoin is a “virtual currency that was designed for anonymous payments made completely independently of governments and governments”. banks” (p. 71). The idea of ​​bitcoins as a digital currency was introduced years ago, but it came to fruition in 2009. No one has been able to confirm who the creator was, illustrating the anonymous nature of the system, but many believe that It was developed by a Japanese. called Satoshi Nakamoto. From now on, the term virtual or digital currency designates a means of payment; in this sense, bitcoins are similar to cash. Each has a set value and is used by people to make purchases or payments. Bitcoins are not a physical currency and they are not issued by any official entity. Some argue that Bitcoin cannot yet be defined as legal tender. Claims As stated by Stanford University (2017), the use of Bitcoin has some purported advantages over other payment systems. First, there is no third-party seizure; There is no way for someone to seize bitcoins, so governments cannot freeze someone's wealth. According to its supporters, this means that Bitcoin users still have the freedom to do whatever they want with their money. Second, there are no taxes involved. Because no one can intercept bitcoin transactions, no one can attempt to create a system for taxing bitcoin. As we will see next, this is not entirely true because bitcoins are still considered assets. Third, transactions are carried out anonymously. There is increased privacy and no way to trace transactions back to a user. Additionally, “by using bitcoins, users will contribute to the network, significantly reducing transaction costs” (Stanford University, 2017, para. 5). Finally, bitcoins can only be stolen if a criminal has physical access to a user's computer and can send bitcoins to their own account. Again, the following discussion will provide proof that bitcoins can still be stolen or lost. Mechanism The Bitcoin system was one of the first to use peer-to-peer technology to facilitate instant payments. As Lo and Wang (2014) describe, Bitcoin “allows for proof and transfer of ownership without the need for a designated third party” (p. 2), which adds to its convenience; THEPeople can transact instantly and easily. To redeem a bitcoin, the user submits their account credentials to the blockchain. Blockchain is the ledger of public transactions; it is the system that allows individuals to buy, sell, mine and use bitcoins. Once the individual logs into the system, they choose what action to take next. If the person initiates a transfer, it is only finalized after being verified by the so-called “minors”. Miners are people “who use their computing power to verify that the transaction is real by solving a computationally intensive problem” (p. 2). As one can imagine, not everyone can work as a miner, and it is not an easy job, but the system allows thousands of people to verify the transaction. The person who solves the problem or “hash” is rewarded with a given number of bitcoins for their help. For some, miners' work is nothing more than money creation. The work of miners is essential to the sustainability of bitcoins. Every time they use their skills, bitcoins are created to reward them for their work, and these bitcoins are added to the already existing stock of bitcoins. Lo and Wang (2014) mentioned that it is important to note that each transaction and the accompanying problem resolution takes less than 10 minutes, so the user attempting to spend their bitcoins can do so in a short period of time. Additionally, if miners get bitcoins every time they verify a transaction, they could generate millions of bitcoins per day. In an effort to control the number of bitcoins “mined,” the algorithm used to create them also sets the future supply of bitcoins. Its limit is 21 million units, which is still an incredibly high number for a form of currency that is not regulated by anyone. Popularity Despite the many claims that bitcoins are becoming as popular as other forms of payment, the reality is that this digital currency is still far from surpassing the popularity of traditional methods such as credit cards. According to Segendorf (2014), Bitcoin usage is low globally. In 2013, approximately “60,000 Bitcoin transactions per day were made” (p. 77). Even though this figure represents approximately $64 million per day, the success did not last. In 2014, less than 28,000 bitcoins were created per day. Such a drastic drop suggests that global demand for bitcoin has declined significantly. On the other hand, Bitcoin's popularity has recently increased in the United States. Heller (2017) stated that in the United States, bitcoin has “more than 13 million registered users…and every second, up to 10 payments are made in bitcoin” (p. 1750). It is because of its growing approval in the United States that many people claim that bitcoins could eventually replace the traditional banking system. Banking System In order to make an accurate comparison between bitcoin and the banking system, one must understand the state of the banking industry in the United States. According to Sylla (2017), “banks are among the oldest businesses in American history” (para. 1). For example, the Bank of New York was founded in 1784. Others, like JPMorgan, Chase, Bank of America, and Goldman Sachs, may not be as old, but are the most powerful banks in the world today. country. These banks share two common objectives: first, they operate a payment system; very few, if any, modern economies are able to function well without an efficient payment system. People entrust their money tobanks and make most of their payments in cash, checks, credit or debit cards. Most people who receive forms of payment linked to a recognized national bank have no doubt about the legitimacy of the payment. In other words, banks are so valuable that they do not need to enlist the help of customers (or minors) to determine whether transactions are real and legal. Sylla (2017) adds that the main evidence of the popularity of banks in the United States is the fact that most of the country's money supply is bank money. In addition to offering efficient and legal payment systems, banks serve as financial intermediation. They use their money to invest or lend. For example, they offer credit to individuals and the government itself. The intermediation function of banks is in fact one of the reasons for the growth of the American economy. According to Sylla (2017), banks helped finance different generations of entrepreneurs who eventually contributed to the American economy. They also supported people who went on to create ordinary businesses that continue to support the economy today. Now, banking can certainly be a risky business. For example, what would have happened if these entrepreneurs had not ultimately repaid the loan? On the other hand, what would happen if banks only cared about their profits and did not maintain monetary reserves? To prevent such situations from happening, banks are regulated and closely monitor the people they lend money to. It is thanks to these regulations that the banking system has continued to succeed despite crises and financial challenges. While some argue that bitcoins are better because they are unregulated, the truth is that no regulation is not always best. Classification of Money Many forms of money exist today, and this includes digital currencies such as bitcoins. According to Heller (2017), the two main forms of money today are physical money and electronic money. Physical money includes “pearls as well as bank notes and metal coins (cash) issued by a central bank” (p. 1750). Electronic money refers to electronic money, and electronic money includes all monetary value stored on a card. When people use their credit cards, they are using electronic money. Note that electronic money is different from digital money. Electronic money comes from a bank and is regulated; digital currency is not. Heller (2017) explained that digital currencies could technically be issued by a central bank, but are often decentralized and generated by a computer system. Bitcoins are classified as digital currency because they are produced by a computer algorithm and no institution regulates them. Additionally, digital currency is not denominated in a sovereign currency; instead, digital currency is a type of currency in its own right. The United States has dollars; The Internet contains bitcoins. Banking and Bitcoin Segendorf (2017) stated that the main advantage of Bitcoin is that it protects the identity of the user. The system is designed in a way that allows payments to be made or received without leaving a trace of the people involved. While people have to waste minutes entering all their personal information to purchase a product online, Bitcoin users only enter a number and are ready to pay. This makes payments easier and less risky,according to some people. With Bitcoin, “the risk of fraud may be perceived as lower, unless card or account numbers must be disclosed to the recipient” (p. 81). Problems such as fraud or identity theft would virtually disappear if all transactions were anonymous. If this is the case, why haven't banks considered this system? As with most things, being anonymous tends to encourage people to engage in illegal or unethical behavior. People could take advantage of the fact that they cannot be recognized to make payments to illegal organizations or request illegal services. For example, individuals who support terrorist organizations could easily use Bitcoin to make donations to them, something they could never do in the banking system. In fact, Heller (2017) stated that currencies like Bitcoin are very vulnerable to money laundering and terrorist financing. Additionally, U.S. tax authorities have begun seeking information on taxpayers who made Bitcoin transactions but did not report them. Although not discussed in most available materials, banks offer consumers something that Bitcoin cannot, and that is the ability to make purchases and payments almost anywhere in the world. Currently, only a few companies accept Bitcoin as a payment method, and Bitcoin can only be used to make online transactions. On the other hand, most organizations accept checks, credit cards, and debit cards as payment methods, and they can be used both online and in physical stores. According to Stanford University (2017), banks are already a well-established system and bank cards are accepted almost everywhere, which is certainly a significant advantage over digital currency. Some people still prefer to shop in physical stores or want to carry cash, and only banks can meet these needs. Some have suggested the development of Bitcoin debit cards, but even if this became a reality, it would still be a long time before most merchants would accept it as a payment option. Another alleged advantage of Bitcoin is that it is not regulated by any country. national legislation. There is no single issuer of Bitcoin because units are automatically created in the network. For this reason, it is impossible to regulate bitcoins. Again, the only case in which this would be ideal would be where an individual wishes to conduct illegal activities. Apart from that, dealing with an unregulated payment system can do more harm than good. For example, people might request a transfer in exchange for a product, and once the transfer is received, they might turn off their computer and never contact the other individual again. The person who made the payment would be left with nothing because the system is unregulated and there is no one to help them resolve their problems. Situations like this would never happen if people were dealing with traditional payment services. As stated by Segendorf (2017), Bitcoin prevents anyone from knowing whether a payment was made or received by a certain person; the only exception is when both parties know the other's identity, but these cases are rare. Due to anonymity, individual users therefore “have only a limited possibility of asserting their rights in the event of a payment error” (p. 81). There is no consumer protection, no mediation andno regulations to protect users who choose to make bitcoin payments, which can attract criminals to the system. Finally, even though people claim that the value of Bitcoin has increased steadily, there are still significant challenges. fluctuations in the bitcoin exchange rate. The value of a bitcoin is very sensitive to market changes; “depending on when someone buys or receives Bitcoin, significant exchange gains or losses can be realized” (Segendorf, 2017, p. 82). Now, relatively constant changes can be good or bad depending on the goal of the action. holding bitcoins. Those who use Bitcoin for transactions might be inconvenienced by having to determine an exchange rate knowing that the rate tends to change quickly. On the other hand, people who want to hold onto bitcoins for future use could benefit from changes in the market. For example, a significant increase in exchange rates could mean that the individual could earn significantly more money than they originally invested. However, bitcoin holders risk losing their money. Segendorf (2017) stated that in some cases people lost everything. Indeed, wallet and account information are stored on hard drives; Therefore, if hard drives are destroyed for any reason, all information including bitcoins are lost. These potential problems are another element that differentiates banks from bitcoins. Funds in bank accounts are more protected and stable, and even if something were to happen, banks are required to pay compensation. The Forecast Future of the Banking Industry Despite all the concerns about the use of Bitcoin, people continue to support it. American banks, on the other hand, do not feel as threatened as one might think. In fact, some of them learn from the virtual currency system and improve their own services. Popper (2016) described how Bitcoin is used by people who distrust central banks, while central banks are “doing some of the most ambitious work trying to exploit the technology introduced by Bitcoin” (para. 2). have made it clear that they do not support and will never attempt to own currencies such as bitcoin, they want to add some of its features to their own systems. For example, banks are considering using a decentralized method of recordkeeping similar to that used by Bitcoin. The method, called blockchain or distributed ledger, would not keep transactions anonymous, but it would make them more secure. It would also allow central banks to monitor the financial system in real time. If central banks succeed, "this would constitute one of the greatest unexpected twists in new technology" (paragraph 6), because it would mean that an invention aimed at destroying the banks would ultimately empower them. The impact of bitcoins on the banking system is difficult to measure. However, experts agree that banks should learn from new virtual currency options. The fact that they have become popular among the population perhaps reflects a deeper problem in the banking industry in the United States, and if banks do not keep up with people's changing preferences, they will be left behind. According to Stalter (2015), one of the reasons for bitcoin's popularity could be that it is entirely digital. Americans no longer “set foot in bank branches these days, choosing to make.