Bitcoin thrives under weak governance

Money, as an economist says, is anything that must serve three main functions. Number one: It has to be a "medium of exchange", which can reliably be swapped for goods and services. Number two: It should be a "stable store of value", enabling its owner to tuck some away inside the safe in his home or in his bank account and come back later to find its real purchasing power at least intact, if not enhanced by interest added by the bank. Number three: It should function as a "unit of account", a statistical yardstick against which value in an economy is measured.
Now let's see how U.S. Dollar and Bangladesh Taka meet these conditions, especially the Condition Number Two. With 2.5 per cent inflation per year in the USA and 10 per cent in Bangladesh you have over 25 per cent of the purchasing power of your U.S. Dollar and the whole 100 per cent of the purchasing power of your Bangladesh Taka gone (more appropriately stolen) in a matter of only 10 years. So, when store value of your money evaporates, would it be unjust if one, learning about money as defined by economists, says US Dollar or Bangladesh Taka is not "officially money"?
People are helpless in dealing with their living that is so dependent on money. Supplying money is the government's exclusive domain and a tool to meet their economic and political goals. People have no say in their governments' power of printing and controlling money. By the supply of money in the market government controls the rate of inflation and thus decides the purchasing power of your earnings.
The government in fact wants you to spend your money as quickly as possible. Savings by citizens, the government would say, is pernicious. They would preach inflation, to an extent, encourages spending and discourages savings. Savings, they would say, results in deflation and is suicidal for an economy.
Wherever you live, in the USA, in Bangladesh or anywhere else, you are always under a pressure to spend whatever you have earned.
But storing away the extra food for future consumption has been the genetic quality of humans and all other animals since the primordial time. Likewise, the ability to save money, we humans have learnt through ages, has been the cornerstone of building wealth. In order to save money, we try to spend less than we earn. The goal is to build up an emergency fund, as we can't predict what life has in store for us.
Shrewd entrepreneurs know that nobody is happy with the ever-depreciating value of present-day money. In a bid to unshackle people from the oppressive monetary authority of the central banks and give them a bit of freedom in choosing a currency that would not devalue much and would require much lesser fees and hassles for remittance, some nerds have invented Bitcoin as an alternative to conventional currency.
Bitcoin is a virtual currency, a form of digital money. Based on a consensus network that enables a payment system, Bitcoin is the first decentralised peer-to-peer payment network that is powered by its users with no central authority or middlemen. Bitcoin sounds like cash in the cloud.
Bitcoin is the first implementation of a concept called "crypto-currency" that uses cryptography to control its creation and transactions. It was in 2008, Satoshi Nakamoto, probably a Japanese cyber guru, published the first Bitcoin specification and proof of concept in a cryptography mailing list.
Satoshi Nakamoto mysteriously left the project in late 2010 without revealing much about his identity, leaving the open-source nature of Bitcoin at the hands of future developers to manage. Bitcoin has since grown exponentially, causing many headaches for governments and their central banks to grapple with a strange competitor in currency controls.
Bangladesh Bank (BB), the central bank of Bangladesh, in a recent circular has notified that Bitcoin is not a "legal tender" as it has not been issued by a government. Any transaction through Bitcoin or any such cryptic currencies, a BB circular warned, would be deemed a punishable crime.
One can state a whole litany of complaints against Bitcoin, as there are numerous shortcomings in the system of this new digital currency. There is no transnational authority to investigate any virtual currency crime. The holders of Bitcoin are by choice anonymous as are their banking details. There is no paperwork. There is no central clearing house.
Moreover, Bitcoin business of late got a thrash as some cyber crooks robbed a huge amount of Bitcoins from some exchanges in the cloud. The recent pillage of roughly 6.0 per cent of outstanding Bitcoins from Mt Gox, a Bitcoin exchange based in Tokyo, has greatly reduced confidence in this digital currency. No one knows exactly how the cyber heist had occurred, except the criminals. There is no suspect. There may never be a suspect, let alone an arrest or a trial. Consequently, Bitcoin prices have dropped.
Despite all the demerits and the periodic disappearance of large quantities of Bitcoins in cyber robberies there seems no letting up in Bitcoin transactions around the world. Bitcoin business has kept growing. The total value of Bitcoins in circulation has risen to about $8.0 billion, from just about $500 million a year ago, while daily transaction volume is up by almost 60 per cent. The reason is: there are some advantages in dealing with Bitcoin for people like drug dealers who would prefer to keep their transactions secret.
Bitcoin users can quickly move their holdings around anywhere in the world without having to rely on any central clearing-house. Bitcoin is cheap to use as banks or money dealers are not needed to execute or confirm the transactions. Bitcoin payments are easier to make than debit or credit card purchases, and can be received without a merchant account. Payments can be made without personal information tied to the transaction. Payments are made from a wallet application, either on a computer or a Smartphone. Any amount of money can be received or sent instantly anywhere in the world at any time. No bank holidays. No borders. No imposed limits.
The central banks all over the world have reasons to hate Bitcoin. At the same time those who wish to see the store value of their money more or less intact at least for a couple of years may like to peep into the internet to see how Bitcoin can be of some help. As long as intolerable inflation would be there to eat away the value of money people with a penchant for savings would always be looking around for something solid, like gold or other appreciative assets, to invest their watery money in. To those austere spenders Bitcoin may look somewhat like digital gold.
Bitcoin gurus are on the prowl to find those candidates who would easily gulp their baits. One such candidate may be Argentina where Bitcoins are popular. Argentina suffered bouts of inflation and even hyperinflation - rising to as high as 20,000 per cent in the late 1980s. Things are not that bad today, but inflation is hitting the country with a volley of 38 per cent. Crypto-currency helps Argentines to get around a myriad of legal restrictions put in place to prevent money from leaving the country. Hundreds of brick-and-mortar businesses in Argentina now accept Bitcoin. Downloads of software to buy and sell Bitcoin are growing and Argentines have free access to a local Bitcoin exchange, called Bitex.la.
Because Bitcoin is anonymously transacted in a centralised system, gauzing its popularity in any given country is difficult. However, the use of Bitcoin is reportedly surging in many developing countries where inflation is high, markets are not allowed to operate freely, and corruption is soaring and most importantly where governance is weak.
But there are also signs that adoption of Bitcoin is indeed on the rise in many developed countries as well. In Hong Kong, as reported by The Economist, startups are laying a network of Bitcoin ATM machines (where you pay money in to obtain Bitcoins) and opening exchanges for online buying and selling, while a handful of bricks-and-mortar businesses have started accepting payments in Bitcoins.
But the real fear is Bitcoin is ominously eyeing on a lucrative domain where banks and money-exchangers have long been enjoying an absolute monopoly: Global Payment Business.  Bitcoin entrepreneurs may unleash the severest blow on the banking industry of the world if they somehow could grab a good share of global payment businesses from which the banks have earned a total of USD 1.3 trillion or 34 per cent of their global profits last year.
Already some financial institutions are pondering over how to win a new race of crypto-currency that Bitcoin has introduced.
JPMorgan Chase & Co., the largest bank in the United States, the other day, filed for a patent for an online payment system that sounds more or less like Bitcoin. In their patent application, the bank argued that while credit cards still dominate the market for online payments, their high processing costs and risks (particularly of fraud) limit their usefulness. They suggest that what the internet now needs is something that would ensure a quick, cheap and simple way of transferring value. What they basically proposed is a means of making anonymous payments. That is a system like that of Bitcoin.
Governments and their central banks should do their best to halt the Bitcoin virus from spreading and thereby jeopardising the monetary discipline. Bitcoin must not be allowed to disrupt the consumer-finance industries.
But at the same time, it would be suicidal for banks to ignore Bitcoin that has emerged as a technological marvel designed to encourage savings and smoothen the remittance business. Bitcoin has come up with a solution: how to transfer something of value from one person to another without middlemen needing to make sure that the item is not copied or, in the case of money, spent more than once.
A few years ago, when millions went online after the invention of the web browser, pundits predicted the Internet's collapse. Technical fixes repeatedly saved the day. Similarly, Bitcoin, which is now deemed a vile currency, may break down today or tomorrow, but another similar anonymous payment system, based on cryptology, would most likely take its place.
Crypto-currency may become the "internet of money" in near future as an efficient platform for financial innovation. It is time for banks to explore how they could use the same technology in their own ways before nerds like Satoshi Nakamoto get the upper hand in dictating how money should be used.

The writer started his banking career in Agrani Bank and retired as a General Manager of Bangladesh Krishi Bank.
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