In a time where banks are raising their fees and charging consumers for using their debit cards, going bankless and using other means of payment has caught on. About 1 in 5 people are reported to have gone bankless and have resorted to gift cards and prepaid cards as a means of payment and consumption. People are trying to avoid paying fees for transactions and services consumers also desire to protect their anonymity and privacy. A fairly new digital currency which was introduced in 2009 by Satoshi Nakamoto has emerged. A Bitcoin is a digital currency that can be used to purchase items online.
Bitcoin is an open source software that allows peer to peer digital transactions. Users create wallets which have an address, each transaction is broadcasted among the entire network and is stored to prevent double spending. Some privacy and anonymity is offered through Bitcoin. As a result politicians have criticized the currency of being used for illicit transactions such as money laundering. There are several exchanges where one can convert the digital currency into dollars, euros and yen as well as other currencies.
It is said that the total limit number of Bitcoins will reach 21 million, most trading for Bitcoins goes on in MtGox. Some people are warning others not to make large investments on the digital currency since it is seen as a high risk investment. On the other hand small businesses have started to accept the currency for payment. Many retailers remain skeptical to accept the currency since the exchange rate risk is high and there are no methods that allow to hedge against the wild currency movement and thin trading volume.
The currency and its value are sighted as being affected more by the currencies fluctuation correlated to goods rather than by major currencies. Since the currency is fairly new the value is influenced by speculators. There is also another concern that there isn't a single price quoted at any time rather several prices on different exchanges.
The Bitcoin wallet is a file on your computer therefore the threat of theft by hackers and viruses is a possibility.
Bitcoins as a digital currency has appreciated very fast, but this summer the currency suffered a security breach in which a large amount of Bitcoins where sold sending down the currency's value significantly. Since the hacker attack the currency has steadily decreased in value. Yet it still trades rather high compared to the dollar about $5 for 1 Bitcoin on MtGox.
All of this comes at a time when the Canadian dollar hit a 12 month low against the U.S dollar on Friday, the euro is also losing ground against the dollar. The U.S. dollar is looking attractive to the market because of its liquidity it is also a safe haven. The dollar was up against most major currency pairs on Friday.
Although this currency suffered its first crash and is fairly new, there are still questions to ask as Bitcoin moves forward. How safe and well monitored is this new form of digital currency? Will any other online currencies enter the game? Is this changing the way in which we will handle transactions and does this show a step towards a universal currency?