INTRODUCTION and my research on the topic. SECTION

INTRODUCTION

Bitcoin, the
elusive, mysterious cryptocurrency grabbed headlines all over the globe a few
years ago. In early 2009 someone using the pseudonym Satoshi Takemoto announced
on a cryptography listserv the release of a new open-source online currency
system, which he (or she) called Bitcoin. Bitcoin has gained widespread
recognition through online media, and despite high volatility it remains a
marginal but distinctive financial asset (Moore and Christin 2013).It is
undoubtedly the most significant intervention in the field of Cryptocurrencies (electronic
currency). Many say bitcoin is a cryptocurrency which is clearly and
indisputably a gigantic’ bubble’ that’s set to burst. But what exactly is a
bubble? “A speculative bubble is a peculiar kind of fad or social epidemic that
is regularly seen in the speculative markets; not a wild orgy of delusions but
a natural consequence of the principles of social psychology coupled with
imperfect media and information channels”(Robert Shiller 2013)

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Rogoff (2017)
mainly argues that this bubble will burst under government pressure. This essay
aims to critically evaluate the arguments present in Rogoff’s article by
drawing on claims from other secondary articles and my research on the topic.

 

SECTION 1: SUMMARY OF ROGOFF (2017)

The article
mainly underlines the fact that Bitcoin is bubble which would possibly burst if
the government steps in to regulate it. It begins with a rhetorical note
questioning the status of Bitcoin on whether the cryptocurrency is a bubble or
a great investment in the new-age of financial technology .Rogoff is confident
that the technology i.e. Block chain will continue to thrive but the price of
Bitcoin would crash. He agrees; although the technology is easy to duplicate,
however it is difficult to replicate a similar credibility and large applications
of ecosystem that have been created and established by Bitcoin. He states that
experts agree that the ingenious technology behind virtual currencies may have
broad applications for cybersecurity, which could be used to improve
cybersecurity and develop a more secure payment mechanism. Many think that
bitcoin will never be allowed to supplant national currencies; as large-scale
anonymous transactions could make it extremely difficult for the government to
collect taxes and could give rise to issues such as tax evasions and other
criminal activities. Rogoff states that Governments cannot overlook these
problems and thus there are possibilities that the government would soon need
to step up and regulate bitcoin systems and argues if this happens then bitcoin
will be stripped of its near-anonymity characteristics and its price will
collapse. However he foresees that the price of bitcoin would perhaps not fall
to zero even if it were regulated since bitcoin transactions amount to much
less as compared the fees charged by big banks on its transactions. As said by
Rogoff it would not be hard to see banks creating digital currencies of their
own thus tilting the game towards them in a win-win situation. He states;
looking at the history of currencies the private sector innovates but eventually
it is regulated by the state.

Bitcoin is a
game changer in the name of currency and challenges the authority and power of
government backed fiat currencies. The fact that it is backed by nothing
questions the state of its purpose and continuity.

SECTION 2: BLOCKCHAIN

There is no
denying on Rogoff’s claim that the technology supporting Bitcoin i.e. Blockchain
would continue to thrive even if bitcoin crashes. But what exactly is Blockchain?
Blockchain is the core of Bitcoin’s system and it’s transparent and clear as
transaction in the records are public .The block chain is, in fact, a huge  chain 
that consists of several blocks of transactions that occur at a
particular time period.  It creates a time
stamped chain of receipts and expenditures among every single participant of
Bitcoin system and with such irrefutable proof, it’s not possible for anyone to
cheat someone or indulge in double spending. It is a digital leger that is
dispersed across networks and is used in the cryptocurrency space to securely
record every transaction between users.(CNBC)

It is a
global online database that anyone with an internet connection can use. ‘Unlike
traditional databases — which are typically owned by big institutions; a block
chain doesn’t belong to anyone; and with an entire network of people monitoring
it, cheating the system by faking documents, transactions and other
information is nearly impossible.'(CNBC) It is a decentralized public
ledger that tracks every transaction in bitcoin’s history. In his article
Rogoff confidently states that the Block chain technology will thrive even if
the price of bitcoin collapses.

The block
chain is the key innovation that makes Bitcoin both unique and ground-breaking.

 

SECTION 3: GOVERNMENT AND BITCOIN

Rogoff’s
main argument in the essay is that the bitcoin bubble will burst if the
government steps in to regulate it. Central Bank of the country is responsible
to regulate inflation and deflation in the economy through its power over the
fiat currency. With Bitcoin challenging its way and getting more attention from
the people than intended; Governments across the globe have been reacting with
this differently.

In this
section I have highlighted the contradictory view of the Japanese and Chinese
Government towards Bitcoin

JAPAN

Japan is
arguably the most cryptocurrency-positive country, and has managed to become so
by recognizing bitcoin as a “legal means of payment”, but not as a traditional
currency. ‘Bitcoin trade in Japan accounts for about half of the global
trade volume. That number has surged since the government passed a new law
earlier this year, recognizing bitcoin as a legal form of currency ‘(CNBC,
2017).’Another factor contributing to a bitcoin boom in Japan: ultra-low interest
rates from the central bank that has left investors looking for places to find
returns on their cash.'(Daily Mail,2018) Thus bitcoin serves as the best option
for an investment which gives great returns.

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