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From Digital Culture & Society

This article discusses the potential benefits and risks associated with BitCoin in regards to it being a peering investment instrument for various reasons ie; decentralization and absence of a single issuing house, as a result, this instrument is free from financial regulations by the government.

The author of this article brings to light the problems in the current monetary system and why crypto has the potential replace it. The existing monetary system due to a globally centralized economy has liabilities such as the absence of gold guarantee or any guarantee for that matter and sudden currency interventions. Hence, this article entails that we are living in a time where there is a search for a monetary system that substantially would have a lesser external impact from politicians and financial regulators. The cryptosystem with Bitcoin, in particular, is leading in the direction to replace the current monetary system. The BitCoin system was developed in 2008 by an anonymous programmer who worked under the pseudonym Satoshi Nakamoto in Japan.

Identifying the strengths in this article, the author explains rationally the difference the between the current fiat money and cryptocurrency, giving the readers credible reasons to understand why a change in the monetary system is needed? For example, in the global economy, currency is controlled by the country that controls the prices of goods along with factors such as real estate prices, cost of production and the control of the central bank. Hence, centralization.

Cryptocurrency, on the other hand, presents a decentralized financial system that guards against the drawbacks of the current monetary system. For example, it is free from regulators, the developer of this financial system has no control over the transactions like the central bank does and is based on the basic demand and supply model free from external influences compared to its counterpart.

Another identified strength in this article is the simplified explanation provided by the author to explain how the BitCoin system works. The Cryptosystem consists of host computers and local computers and BitCoin is based on a single one-time algorithm that was initially put in place and the divided computations performed by lower-powered host computers being a specific feature of this peering network. This absence of a single server makes it possible for decentralization of the network. As a result, the more users subscribe to the network, the more sturdy the network becomes. Though, this article is based on the understanding of BitCoin, for extended clarification, the author also brings to light the methodology of the entire cryptocurrency system. The cryptocurrency system is built on the participation of as many local computers in the network as possible. These “host” computers also known as trade platforms perform computations of math tasks in the form of an algorithm which then adds a puzzle in operation of the entire system and supports its functioning. The mathematical tasks performed are called hash-functions. These hash functions ensure the stability of the entire system, therefore, securing the transactions and generating new BitCoins.

A major strength of this article is regarding the contemporary drawbacks and issues associated with BitCoin. The author goes in depth explaining the immediate slump in the exchange rate of BitCoins which dropped by 10 percent. Even though BitCoin is free from regulations, it is not free from external factors that could affect its value. For example, when the Chinese internet company Baidu stopped accepting payments in BitCoin, the value of crypto coins as a whole slumped by 13%. Today, these sort of sharp fluctuations are more possible than ever because the government of any country in the world can ban the use of the cryptosystem. If all the major exchange markets refuse to accept crypto for real money, the system will collapse.

Pointing out the weaknesses in this article lies in the explanation of risks associated with cryptocurrencies. For example, in the case of BitCoin, the sellers receive an anonymous currency with an exchange rate that fluctuates and depending on the exchange rate, profit or loss is made. As a reader, this makes it hard to trust the currency as this section of the article revolves around a lot of skepticism. To conclude, by analyzing the main concepts presented in this article, I agree with the author that a financial system based on cryptocurrency needs facilitated development.