The next time you go shopping for your wife’s birthday present, you might not need to bring anything but your “Virtual Wallet.” Bitcoins are making their way in to the accepted payment forms of some pretty large retailers. But before we talked about why bitcoins are being accepted lets talk about what bitcoins are.
The world of finance is a pretty complex place already, and now we add to this complexity the bitcoin variable. What is a bitcoin you ask? Bitcoins are digital currency, kind of like cash for the internet. Bitcoins are decentralized, which means they are free from any government or central bank. The transferring of bitcoins is called “peer to peer.” This means that the transaction between these parties does not require a bank. The decentralization and lack of banking interference are the two main advantages to bitcoins that are making retailers accept their form for payment.
Lets talked about the decentralization features of bitcoin. Centralized currency like the U.S. Dollar and the Euro can be manipulated by government or institutions. Bitcoins do not have a home government or a central bank, therefore they can’t be manipulated by a single or group of counties for their benefits. This allows the bitcoin to shield it’s purchasing power from inflation. As inflation grows the purchasing power of the cash in your wallet or bank account decrease at the same rate as the inflation. If you have a hard time thinking about this, think about how much a dollar would buy in 1955 vs 2014. This shielding of purchasing power is a very desirable feature of bitcoins for businesses. Think about it, you can either be paid a centralized currency that loses it purchasing power everyday due to inflation or in a currency that actually increases it purchasing power everyday due to inflation. Think about it kind of as a “virtual gold.”
Now on to the “peer to peer” transferring of bitcoins. Banks really do two things, first they loan money on interest and charge fees to use their services. These fees and interest rise the cost of goods and services for businesses. This cost is ultimately passed on down to the end consumer. Bitcoins allow businesses the ability to reduce costs which allows prices of goods and services to fall by cutting out the cost of the banking middle man. Businesses can finance operations with bitcoins at a lower cost that traditional currency. This allows businesses that accept bitcoins to have an economic advantage over it competition.
Bitcoins are a treat to the traditional monetary system. Banking systems will not be able to charge high interest rates or service fees and governments will not have the ability to tax the exchange of bitcoins. However with this limiting power of the banks and governments the businesses and consumers will have more power and privileges restored to them.