Bitcoin: Social and Political Issues

As Bitcoin continues to grow in popularity across the globe,  it’s hard to talk extensively on the topic of the world’s fore-running cryptocurrency without mentioning social and political issues that the technology can be connected to. I will discuss just some of these issues in the following blog post.

When Complementary Currencies Take Hold

Economists say that money has three core functions. These are

To serve as…
1. A Store of Value (money has its own intrinsic value/ quantifiable worth)
2. A Medium of Exchange (it can be used in transactions)
3.  A Unit of Account (to measure the value of other goods and/or services)

It is also said that,
“When a state-sanctioned currency fails to fulfil any of these functions, complementary currencies seep in.” [4]

 

Bitcoin-accepted-here-sign-1This has been evidenced throughout various periods in recent history. “Complementary currencies” (those that are not the official currency of a state) have been resorted to in times of turbulence, inflation or uncertainty.  For example, in the years of following the fall of the Soviet Union in Russia, towards the end of the twentieth century, the US Dollar became a hard currency within the region. Even though the Russian Ruble has been performing consistently well for the last fifteen years, some rent prices in Moscow are still given in US Dollars. Bitcoin has several advantages for consumers and enterprise over government-backed (fiat) currencies. It is believed that Bitcoin has the propensity to capitalise on the short-comings of fiat currencies and “seep in” to international economies within the next few years, as many alternative currencies have done before.

International Remittances and Bitcoin

One of the main advantages of Bitcoin is the ease with which the currency can be transferred across borders. Not only is it a far quicker form of overseas money transfer, the transaction costs are negligible in comparison to those incurred via traditional payment methods. As a result, a potential area of growth for Bitcoin is seen to be in international remittances.
illu-bitcoin-041213
International remittances  is a term used to refer to the money that migrant workers have earned in one country and send back home to family or other dependents in another. In 2012, total global remittance flows were an estimated $529 billion. Of this figure, $401 billion are estimated to have been remittance flows to developing countries. [1] However, when a migrant worker transfers money overseas, several intermediaries are involved. Wire services, currency exchanges and various banking services must all be availed of and each of these comes at a price. Studies and reports have shown that the average costs incurred when a person sends remittances amount to 9% of the sum being transferred. Conversion to cash in the local currency can then cost an extra 5% of the remaining amount. [2] If these same migrant workers were to use digital currency however, Bitcoins could be sent by email for free and received within minutes by the family or friends abroad. Bitcoin therefore has the potential to drastically change international remittances practices.

Developing Countries and Bitcoin

In some developing parts of the world, such as Africa, South America and South Asia, for example, people don’t have access to bank accounts or other financial services, let alone a Paypal account or digital transfer methods. And, for some developing nations that do have access to such services, they may be run by governments considered corrupt, in a political or social system rife with distrust. It is thought that Bitcoin may prove most beneficial in parts of the world such as these.

Bitcoin has no central monetary authority and employs cryptography to ensure that only a limited number of bitcoins ever come into circulation. This means that no person, organisation, head of state, government or bank can alter the value of bitcoins or cheat the system. No already established infrastructure is needed either; all that is necessary to create a virtual wallet and begin engaging in transactions with other users worldwide, is access to the internet and some sort of online device (a mobile phone, tablet, desktop computer, etc.). Both of these features would be of great appeal to people in lesser-developed countries.
bitcoins-currency-610x343
While it is true that the majority of the world’s population don’t even own a bank account, many “evangelists” of the Bitcoin era assert that the same sort of adoption curve could possibly be seen amongst developing nations as occurred with mobile phones approximately a decade ago. Just as much of Africa’s population skipped landline phones and went straight to mobile phones, it has been speculated by some that, in certain parts of the world, bank accounts and debit cards may be skipped entirely and digital currencies adopted straight off the bat.

However, regardless of the trend of adoption that is seen, if at all, one thing is for certain; lesser-developed nations could stand to gain tremendously from being connected to the worldwide online market. Such countries have long been isolated from the global internet economy and not able to reap all of the benefits from such a community that developed nations have. The ability to exchange capital with whomever we want, wherever we want, is an extremely powerful and invaluable benefit of digital money transfers. Digital currency would allow developing nations to do this. Entirely new markets could be opened up and capitalised upon if Bitcoin were to achieve success and prevalence across the developing world.

Governments and Financial Institutions Beginning to Feel the Heat

Some governments such as China and Russia have issued official statements banning bitcoins. The Russian Prosecutor General’s Office issued the following statement at the beginning of this year:

“Systems for anonymous payments and cyber currencies that have gained considerable circulation – including the most well-known, Bitcoin – are money substitutes and cannot be used by individuals or legal entities.”

Canada has also followed suit with similar sentiments being officially released. Government officials in China have ruled that Bitcoin and other such digital currencies should not to be considered legal tender and have also disallowed financial and payment institutions from using bitcoin, exchanging it for real world currency or from acting as an intermediary for Bitcoin transactions.

Such government officials have cited the currency’s potential use in illegal activities, money laundering and terrorism as being their primary concern. However, many have purported that the real reason behind such moves is that Bitcoin is being considered a real threat to central bitcoin-prohibitionbanks, governments and national currencies worldwide. The advantages of Bitcoin transactions over traditional payment methods involving national currencies cannot be denied and it would seem that governments and financial institutions worldwide are beginning to prick their ears and seriously consider the implications of widespread adoption of Bitcoin. The US is currently seen as “bitcoin-friendly” for the most part. However, if the country or other similarly developed Westernised countries were to make the move to ban bitcoins and other such digital currencies, many advocates of the cryptocurrency believe that this would only serve to spur Bitcoin’s growth onwards and upwards. It has been purported that if such an event were to occur, the Streisand Effect may very well take hold.

The Streisand Effect is
“A phenomenon whereby an attempt to hide, remove, or censor a piece of information has the unintended consequence of publicizing the information more widely, usually facilitated by the Internet”. [3]

The phenomenon is named after American entertainer, Barbra Streisand, whose lawsuit against a paparazzo that took invasive photographs of her home in Malibu, California, inadvertently resulted in a tremendous spike in traffic to the paparazzo’s site containing the pictures. Governments will, however, no doubt take the potential for such a phenomenon occurring into account when deciding how or if to take action with regards Bitcoin and its growing popularity. One thing is for certain however; as long as Bitcoin is around, it will continue to play a role in, as well as highlight, various social and political issues.

Sources Read:

  1. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/0,,contentMDK:21924020~pagePK:5105988~piPK:360975~theSitePK:214971,00.html
  2. http://news.nationalgeographic.com/news/2013/10/131014-bitcoins-silk-road-virtual-currencies-internet-money/
  3. http://en.wikipedia.org/wiki/Streisand_effect
  4. http://simulacrum.cc/2013/06/17/bitcoin-cultural-values-and-identity/
  5. http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-how-does-bitcoin-work
  6. http://answers.ask.com/business/finance/what_are_the_three_functions_of_money

Images Sourced (in order of appearance)

  1. http://finance.yahoo.com/news/heres-why-venture-capitalists-want-163458625.html
  2. http://www.rnw.nl/africa/article/hello-bitcoin-goodbye-western-union-future-remittance-could-be-digital
  3. http://mashable.com/2013/12/08/bitcoin-price-plunge-china/
  4. http://www.coinstech.com/russia-bans-bitcoin-says-it-should-be-avoided/

 

Author: Caoimhe O’Donovan

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