IndexIntroductionDefinitionComplaintsMechanismPopularityBanking SystemMoney ClassificationBank vs BitcoinExpected Future of BankingConclusionIntroductionA brief definition of Bitcoin is that it is a type of virtual currency. However, there is much more to bitcoin and why it has become more popular. Some people prefer bitcoin because it allows them to remain anonymous while carrying out monetary transactions. Other people simply support bitcoin because they don't trust banks. Whatever the reason, a growing number of people seem to believe that bitcoin is a better choice than banks. However, evidence shows that the Bitcoin market is too volatile and unsecured to be considered an alternative to the banking system, which may explain why bitcoins are not accepted as a form of payment everywhere. The following is a discussion based on the nature of Bitcoin and its potential to dethrone central banks in America. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Definition According to Segendorf (2014), bitcoin is a “so-called virtual currency that was designed for anonymous payments made completely independently of governments and banks” (p. 71). The idea of ​​bitcoin as a digital currency was introduced years ago, but came to fruition in 2009. No one has been able to confirm who the creator was, which illustrates the anonymous nature of the system, but many believe it was developed by a Japanese man called Satoshi Nakamoto Now, the term Virtual or digital currency refers to a means of payment; in this sense, bitcoins are similar to cash. Each has a certain value and is used by people to make purchases or payments. Bitcoins are not physical currency and are not issued by no official entity. Some argue that Bitcoin cannot yet be defined as legal tender. Claims As stated by Stanford University (2017), there are some supposed advantages to using bitcoin over other payment systems. First of all, there is no seizure against third parties; there is no way for someone to seize bitcoins, so governments cannot freeze someone's wealth. This means, according to supporters, that Bitcoin users always have the freedom to do what they want with their money. Secondly, there are no taxes involved. Since no one can intercept bitcoin transactions, no one can attempt to create a bitcoin tax system. As will be discussed later, this is not entirely true because bitcoins are still considered assets. Third, transactions are made anonymously. There is greater privacy and there is no way to trace transactions back to a user. Furthermore, “by using bitcoin users will contribute to the network, which significantly reduces transaction costs” (Stanford University, 2017, para. 5). Finally, bitcoins cannot be stolen unless a criminal has physical access to a user's computer and can send bitcoins to their account. Once again, the following discussion will provide evidence 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 described by Lo and Wang (2014), Bitcoin “enables proof and transfer of ownership without the need for a designated third party” (p. 2), which increases its convenience; people are able to transact instantly and easily. To use a bitcoin, the user sends their account credentials to the blockchain. The blockchain is thepublic register of transactions; it is the system that allows people to buy, sell, mine and use bitcoin. Once the individual logs into the system, he or she chooses which action to perform next. If the person initiates a transfer, it is only completed after being verified by the so-called “miners”. Miners are people “who use their computing power to verify that the transaction is real by solving a computationally intensive problem” (p. 2). As you can imagine, not everyone can work as a miner, and it is not an easy job, however the system allows thousands of people to verify the transaction. The person who solves the problem or "hash" is rewarded with a certain number of bitcoins for their help. For some, the work of miners is nothing more than the creation of money. The work of miners is critical to the continued existence of bitcoin. Every time they use their skills, bitcoins are created to reward them for their work, and those bitcoins add to the already existing stock of bitcoins. Lo and Wang (2014) stated that it is important to note that each transaction and the resulting troubleshooting takes less than 10 minutes, so the user attempting to spend their bitcoins is able to do so in a short period of time. time. time. Furthermore, if miners got bitcoins every time they verified 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 fixes 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.PopularityDespite 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, there were approximately “60,000 bitcoin transactions per day” (p. 77). While that amounted to about $64 million a day, the success didn't last. In 2014, fewer 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 has recently increased in popularity in the United States. Heller (2017) stated that in the United States, bitcoin has “more than 13 million registered users…and up to 10 bitcoin payments are made every second” (p. 1750). It is because of its growing acceptance in the United States that many people argue that bitcoin could eventually replace the traditional banking system. Banking System To make an accurate comparison between bitcoin and the banking system, you need to understand the state of the banking industry in America. 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, such as JPMorgan, Chase, Bank of America and Goldman Sachs, may not be as old but are the most powerful banks in the country today. These banks share two common purposes. First, they operate a payments system; very few, if any, modern economies are able to function well without an effective payments system. People rely on banks for their money and make most payments using cash, checks, credit cards or debit cards. Most people who receive forms of payment linked to a recognized national bank have no doubts about the legitimacy of the payment. In other words, banks have so much name value that they don't haveneed help from customers (or miners) to determine whether transactions are real and legal. Sylla (2017) added that the main evidence of the popularity of banks in the United States is the fact that the majority of the country's money supply is bank money. In addition to offering efficient and legal payment systems, banks act as a financial intermediary. They use their money to invest or lend. For example, they offer credit to private individuals and the government itself. The intermediation function of banks is in fact one of the reasons why the American economy has grown. According to Sylla (2017), banks have helped finance several generations of entrepreneurs who have ended up contributing to the American economy. They also provided support to those who created mainstream businesses that continue to support the economy today. Now, banking can definitely be a risky business. For example, what would have happened if those entrepreneurs had ultimately not repaid the loan? On the other hand, what if banks only cared about profit and did not maintain monetary reserves? To prevent these situations from occurring, banks are regulated and carefully monitor the people they lend money to. It is thanks to these regulations that the banking system has continued to be successful despite financial crises and challenges. While some argue that bitcoin is better because it is unregulated, the truth is that lack of regulation is not always the best solution. Classification of Money Today, there are many forms of money and this includes digital currencies such as bitcoin. According to Heller (2017), the two main forms of money today are physical and electronic money. Physical money includes “beads as well as banknotes and 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 credit cards, they use electronic money. Please note that e-money is different from digital currency. 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 a digital currency because they are produced by a computer algorithm and there are no institutions that regulate them. Furthermore, 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 has bitcoin. Banking vs. BitcoinSegendorf (2017) stated that the main advantage of Bitcoin is that it protects the user's identity. The system is designed in such a way that it allows you to make or receive payments without leaving any trace of the people involved. While people have to waste minutes entering all their personal information to purchase a product online, bitcoin users just enter a number and are ready to make the payment. Some say it makes payments easier and less risky. With Bitcoin, “the risk of fraud may be perceived as lower unless card or account numbers need to be disclosed to the recipient” (p. 81). Problems like fraud or identity theft would essentially disappear if all transactions were anonymous. If so, why haven't banks taken this system into consideration? As with most things, anonymity tends to encourage people to engage in illegal or unethical behavior. People could take advantage of not being recognized for making payments toillegal organizations or request illegal services. For example, individuals who support terrorist organizations could easily use Bitcoin to make donations, something they would never be able to do in the banking system. Indeed, Heller (2017) stated that currencies such as bitcoin are very vulnerable to money laundering and terrorist financing. Additionally, tax authorities in the United States have begun seeking information on taxpayers who made Bitcoin transactions but did not report them. Although it is not discussed in most of the available literature, banks offer consumers something that Bitcoin cannot provide, namely the ability to make purchases and payments almost anywhere in the world. At the moment, only a few companies accept Bitcoin as a form of payment, and Bitcoin can only be used to make online transactions. On the other hand, most organizations accept checks, credit cards, and debit cards as a form of payment, and they can be used both online and in physical stores. According to Stanford University (2017), banks are already an established system and bank cards are accepted almost everywhere, which is certainly a significant advantage over digital currency. Some people still prefer to make purchases in physical stores or want to carry cash with them, and only banks can accommodate those needs. Some have suggested the development of Bitcoin debit cards, but even if that were to become a reality, it would be a long time before most merchants would accept it as a payment option. Another supposed advantage of Bitcoin is that it is not regulated by any national legislation. There is no single Bitcoin issuer because units are created automatically in the network. For this reason it is impossible to regulate bitcoins. Again, the only case where this would be ideal would be if an individual wanted to conduct illegal business. On top of that, dealing with an unregulated payment system can cause more harm than good. For example, individuals might request a transfer in exchange for a product, and once they receive the transfer, 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 assist them in case of problems. Situations like these would never arise if people were dealing with traditional payment services. As stated by Segendorf (2017), Bitcoin makes it impossible for anyone to know whether a payment has been made or received by a particular person; the only exception is when both parties know the other's identity, but these cases are rare. Thanks to anonymity, individual users "therefore only have a limited possibility of asserting their rights in the event of a payment gone wrong" (p. 81). There is no consumer protection, no mediation and no regulation to protect users who choose to make bitcoin payments, which can attract criminals into the system. Finally, while people argue that the value of Bitcoin is constantly increasing, there are still strong opinions on bitcoin exchange rate fluctuations. The value of a bitcoin is very sensitive to market changes; “depending on when someone buys or receives Bitcoin, they can make significant gains or losses on the exchange rate” (Segendorf, 2017, p. 82). Now, relatively constant changes can be positive or negative depending on the purpose of holding bitcoin. Those who use bitcoin for transactions may have the inconvenience of having to determine an exchange rate knowing that the rate tends to change quickly.On the other hand, people who want to hold bitcoin 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 initially invested. However, bitcoin holders run the risk of losing their money. Segendorf (2017) stated that in some cases people lost everything. This is because wallet and account information is stored on hard drives; therefore, if for some reason the hard drives are destroyed, all information, including bitcoins, is lost. These potential problems are something else that separates banks from bitcoin. Funds in bank accounts are more protected and stable, and even if something were to happen, banks are required to pay compensation. Predicted Future of the Banking Industry Despite all the concerns regarding the use of bitcoin, people continue to support it. American banks, on the other hand, do not feel as threatened as some might believe. In fact, some of them are learning from the virtual currency system and improving their services. Popper (2016) described how Bitcoin is used by people who distrust central banks, but central banks “are doing some of the most ambitious work in trying to exploit the technology introduced by Bitcoin” (para. 2). That is, while central banks have made it clear that they do not support and will never try to own currencies like bitcoin, they want to add some of its features to their own systems. For example, banks are considering using a decentralized method of record-keeping similar to that used by bitcoin. The method, called blockchain or distributed ledger, would not keep transactions anonymous but make them more secure. It would also allow central banks to monitor the financial system in real time. If central banks were successful, “it would be one of the biggest unexpected twists in new technology” (para. 6) because it would mean that an invention aimed at destroying banks would end up empowering them. The impact of bitcoin on the banking system is difficult to measure. However, experts agree that banks should learn from emerging virtual currency options. The fact that they have become popular among the people may reflect a deeper problem with the banking system in America, and unless banks keep up with changes in people's preferences, they will fall behind. According to Stalter (2015), one of the reasons for bitcoin's popularity could be the fact that it is entirely digital. Nowadays, Americans no longer “set foot in bank branches, choosing to make transactions with mobile apps or ATMs” (para. 3). Today, most banks offer mobile banking services and allow customers to make payments with their smartphone instead of a credit card. These changes suggest that the banking system has started to adapt to technological changes, which is a good sign. Talking about the future of banks, Stalter (2015) stated that there will be fewer branches. Banks will continue to close branches, and the ones that remain will look very different. Instead of large buildings, “we will see greater use of kiosks and other technologies” (para. 9). While the solution to changes is to adapt, smaller banks will not be able to afford to implement new technologies; as a result, many will close sooner or later and there will be fewer banks. The silver lining is that banks that survive the changes will begin to offer more online and mobile options. Research shows that millennials prefer mobile banking and also suggests that.