Impact of Bitcoin on the World Economy: Opportunities and Challenges

Impact of Bitcoin on the World Economy: Opportunities and Challenges

Harshita Patel (VIT University, India), Sadhana Burla (KLEF, India) and Manjula Josephine B. (KLEF, India)
DOI: 10.4018/978-1-7998-0186-3.ch009

Abstract

Bitcoin has brought a revolution in digital market. Bitcoin doesn't follow any supervisory body or central authority to control it. Unlike any country's currency, it is not supervised by a government. It flows on networks and is managed by decentralized actors. Like any other innovation, bitcoin also has pros and cons associated with it. In this chapter, the authors discuss all the opportunities and challenges related to bitcoin and its impact on the world economy.
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What Is Bitcoin And Its Emergence

Bitcoin is a well known cryptocurrency running over network without direct interference of any authoritative body or any financial institution that is direct transfer from one party to other. It is also known as cash running over internet. The pseudo founder of bitcoin Satoshi Nakamoto brought this concept of virtual currency which is becoming very popular in fact it could be said that over the past few years, Bitcoins are gaining vital importance round the world. The system was developed with the thought of maintaining crypt proof to make possible direct transactions between two parties without the need of trusting the third one i.e. peer to peer transaction. In his paper, Satoshi Nakamoto has provided full description of Bitcoin (Nakamoto, n.d.). It is very obvious to feel the difference between functioning of the traditional currencies and Bitcoin and their impacts by the all type of financial institutions such as stock markets or any nation’s finance departments. So it is becoming needed to project the direct effect of popularity of Bitcoin in world’s economy. Here in this chapter we are discussing the same with possible aspects.

Figure 1.

Bitcoin: A cryptocurrency (Godbole, 2019)

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Effect on Different Financial Institutions

Though the effect of digital currency on the Global Economy is one of extraordinary discussion, it should be seen that how it is affecting different financial institutions in which manner; is it common for all or specific to the agency? Financial institutions may range from any country’s government finance department to stock market, online transfers to Banks and GDPs or anything which may affect economy directly or indirectly.

It is a well known and generally accepted fact that world economy principally depends on the US Dollar which is being treated as reserve currency for global economy. So any ups and downs in US market directly affect the world economy, year 2008 financial slowdown is a life-size example of it. This so called US Dollar based global economy is working in traditional manner that is following the governing authorities and trusting the third parties. The ever increasing popularity of Bitcoin is somehow looking as challenging to this legendary system (Unocoin, 2017; ACQUI Technology, n.d.).

On Governments

Governments of many countries are directly rejecting the concept of cryptocurrency or Bitcoins for their nation’s economy while some are getting ready to accept this global financial challenge. In both the cases of accepting or rejecting Bitcoins for their economies, countries have their own set of valid reasons. Such as at one end Bitcoins are safer currency in terms of storage because it is digital, and also secure due to high encryption while running over network and direct transaction among peers. But on the other hand as it is not bound with any centralized or authoritative system, it is not easy to control the flow of money. Beside of the advantages, Bitcoin came with some pitfalls too. Because of non existence of any superior body, transactions may be affected by threats and frauds. Money laundering and use of cryptocurrency in crime may directly be able to affect the security of any nation which will be intolerable for any government (McWhinney, 2019).

Figure 2.

Governments and Bitcoin (Digdaga, 2017)

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On Banks

Banking sector is one of the first financial institutions to be affected by the emergence of cryptocurrency, especially from the most popular cryptocurrency Bitcoin. Banks are playing the most important role in handling money of any country and its credibility. But because of Bitcoin, which is directly neglecting the existence of any authority in between peers, also it is highly technically strong in terms of security due to encryption, challenging the way of working of banks. Banks are also not in the position of just sit and watch; they need to find out the way to deal with this kind of comparatively new system of money exchange (Building Global Democracy, 2017).

Figure 3.

Bitcoin and banks (Landewednack House, n.d.)

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On Stock Market

The effect of Bitcoin is also non deniable over stock markets, even if it is indirect in nature. It is coming into the picture of any stock exchange with the companies dealing with Blockchain or other cryptocurrency related technologies. Also it has shown its presence over the world stock exchanges with high value gains many times. Though some countries including a big economy China have ban the Bitcoin because of its high volatile nature (Pollack, 2018).

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