The Future Of US Dollar, Metallism Vs Chartalism, And Bitcoin: A Research Report

US Dollar: Future and Protection

A. The US dollar is considered the dominant currency in the world today, as it forms the basis for much of the world’s trade and finance. The US dollar emerged as the standard of world currencies after WWll , as the United States became the undisputed world power, militarily, economically and financially. Much of the dollar’s strength was based on its backing by the commodity gold. This tie to gold was finally broken in 1971, under the direction of US President Richard Nixon. The US dollar no longer has commodity backing. This has caused many in the global marketplace to question the future dominance of the dollar, as history has seen the eventual destruction of all fiat-based currencies. Your paper should discuss the future of the US dollar and whether you believe it will eventually collapse and if so, what would cause this, and what likely would replace it and why. Your discussion should also assess the statement that the US government “will do anything to protect the US dollar”. Do you believe this is true or false and why/why not? Your report should investigate what, if any, major efforts the US government has taken in the past to protect its currency, and what – if any- political, economic, or social consequences have resulted.

B. There are two main schools of thought around the origins and meaning of money and what is its real source of value. One view holds that money is something with intrinsic or “hard” value. This school known as “metallism” states that money’s value comes from its intrinsic worth – usually relating to the value of silver or gold. In the past other commodities – such as grain and cocoa beans have also fit this role. This metallist view states that these commodities have served as money through history because they have inherent worth determined by the market. Paper money can fit into this metallist view as long as it is backed –up by some hard commodity such as silver or gold (such as under the gold standard). The opposing view- known as “chartalism” states that money itself doesn’t have any intrinsic or inherent value. This “soft” money could be a piece of paper – like a $5 dollar bill – which has no inherent worth. In this view the government is responsible for the original creation of this money and its value in exchange. Metallists believe money was created out of barter, eventually replacing it in most societies. Money is a creation of the private market, with government just acting as a type of regulator or referee. Chartalists, on the other hand believe debt or credit systems lead to the evolution of money. Your paper should evaluate the strengths and weaknesses of each of these schools of thought. While the chartalist school seems to be in place in today’s global non-metal backed soft currency system there are many people who see this as a weakness. Your report should conclude with a position on which of these two schools should be the foundation of our future global money system and why.

C. Bitcoin is the first and most popular of the multitude of crypto-currencies on the market. It has experienced wild swings in price since its inception in 2009 – reaching a high of almost $20K US in December of 2017. It has not yet reached wide market acceptance as a form of money, many speculating that it never will. Based on the key attributes of money consider the following issues in your report:

Should we consider Bitcoin to be money? Why/why not –explain your reasoning

What are the main factors that would promote wide spread acceptance and usage of Bitcoin as money?

What are the main barriers standing in the way of Bitcoin going forward?

What are the main reasons for the wide price swings in Bitcoin since its inception?

US Dollar: Future and Protection

Bitcoin refers to the methods that are used to make money transfer via the internet. Bitcoin uses a decentralized network to control it by the use of a transparent set of rules and hence gives an alternative to the central bank controlled flat cash. Many discussions have been held on whether to consider bitcoin as money or not. Initially, Bitcoin was made to act as an alternative and decentralized method of payment. It was operating at a very low cost and was almost instant. It also had an added advantage to the merchants since it was and has not been reversible and hence it removed the threats of chargebacks.

Bitcoin may be considered the best form of money that has ever been used. For something to be used as money, it should have several properties. Bitcoin has met these properties. The properties include:

Scarcity-there is a need for a finite supply so that there is the maintenance of value. Research shows that there will only ever be about 21,000,000 bitcoins and that there will be no person who will be able to create more bitcoins (robert , 2017). The latter is a rule in the bitcoin network and is maintained with a high degree of security.

Durability-bitcoin maintains this property since it neither tears nor breaks. One can, however, purchase physical items which possess bitcoin addresses stored upon them (robert , 2017).

Divisibility-bit coin meets this property in that each bitcoin normally abbreviated as BTC is divisible into eight decimal places. A satoshi is 0.00000001 bitcoin (John, 2018). The latter is meant to ensure that there is a global scale which is used by people to make transactions in fractions of bitcoins. Given that the value increases on a daily basis, then it will be counted in bits and milli bits.

Portability- Bitcoins can be stored in mobile phones, tablets or even bitcoin wallets. It does not have fractions. It is much lighter than carrying around cash. Before the introduction of bitcoin, it was not easy to move large amounts of money across the globe within a fraction of a second at little or even no cost ( Graham , 2017). The latter is likely to strengthen the relationships in the world economy and hence make it easier for businesses to operate.

Bitcoin is widely accepted because it has the first mover advantage of being the first of its kind. The cryptocurrency has faced many attacks but finally grew strong with all the hardships it faced (Billy , 2018). Gox announced the demise of bitcoin, but people still bought it and hence made it realize its future.

Bitcoin also possesses the social network effect (commonly known as network externality). The latter refers to the positive effects that are described in economics that an added user of a service has on the service on the value of the given service ( Graham , 2017). Bitcoin also boasts of possessing the viral effect since it has been noted to have the highest media coverage and the latter has been spreading like fire on social media (robert , 2017). Through this, many people who have access to the internet have learned about bitcoin and used it. The name is also catchy and appears to vibrant to most people.

Metallism vs Chartalism

Bitcoin is treated like many individuals as a store of value. It is an equivalent of the digital gold and it goes on growing in value but not money (this was one of the primary objectives of bitcoin). There is also an intense regulation that makes the cryptocurrency a safer bet when compared to the majority of individuals who did not have faith that bitcoin was not a Ponzi scheme.

Blockchain refers to a publicly visible and protected strong encryption. Blockchains can be used by people to store currency. Blockchains are not secure anymore. They are supposed to be secure, but high profile hacking have been taking place every time. The latter has been caused by the hard to find weaknesses in the codes used in block chains ( Graham , 2017). Examples of hacks that have taken place before include the Mt. Gox hack, the DAO hack, and the Bitfinex hack among others. Research shows that more and more hackings will take place in the future. Scientists have been doing some research on how to curb hacking called identify theft which allows limited duping of bitcoins.

Blockchains are not effective when applied in big scale. The reason behind this is power. Recent research showed that bitcoin could consume electricity more than what a single home could consume in the USA for one and half days (Kenny, 2017). The world hence can find it hard to run on bitcoins unless it consumes lesser energy or we get an unlimited source of energy, which is almost impossible.

Bitcoin experienced a bull run which saw it rise from $6400 to as high as $ 8500.as the bitcoin experience this rise, the other cryptocurrencies were suffering and did not have any bull run bitcoin that could cushion their fall. The crucial markets where bitcoins operate are also mulling on whether if to pass a law that would end tax benefits for the cryptocurrency exchanges. Cryptocurrency transaction brokerage is also not effective in the generation of added value.

Bitcoin has not been stable for some time as a result of its insecurity. The managers of cryptocurrency have been trying to curb money laundering and protecting the customers, but a lot needs to be done on the same (John, 2018). As a result of bitcoin using much energy, its prices have been swinging over a long time. The energy crisis that happens in the market makes the makes the prices for bitcoin swing too.

Conclusion

As noted in our discussion. There are several properties that must be met for something to be called money. Bitcoin possesses these properties and hence it has been used as money. There has however been constrains since it uses a lot of power to run. Bitcoin also faces security issues and hence the bitcoin officials need to do everything possible to ensure that customers are not exploited by hackers. There is also need to look for ways to make bitcoin operation to to consumer a lot of power.

References

Graham , T. (2017, May 24th). Surging Bitcoin Faces Two Barriers. Retrieved from Innovation: https://www.inverse.com/article/32111-bitcoin-blockchain-two-biggest-problems

Billy , B. (2018, July 31st). Forbes. Retrieved from Why Bitcoin Price Is Tanking: https://www.forbes.com/sites/billybambrough/2018/07/31/the-bitcoin-price-is-tanking-heres-why/#37ae50787c52

John, P. K. (2018, Oct 5th). Why do Bitcoins Have Value. Retrieved from Investopedia: https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp

Kenny, L. (2017, March 17th). The History of Money & the Future of Bitcoin and the Cryptocurrency Economy. Retrieved from Blockchains: https://hackernoon.com/the-history-of-money-the-future-of-bitcoin-and-the-cryptocurrency-economy-5cc25e808275

Robert , b. (2017, may 21st). Is Bitcoin Real Money? Some Things You Need To Know. Retrieved from Blockgeeks: https://blockgeeks.com/is-bitcoin-real-money/