INTRODUCTIONBitcoin, theelusive, mysterious cryptocurrency grabbed headlines all over the globe a fewyears ago. In early 2009 someone using the pseudonym Satoshi Takemoto announcedon a cryptography listserv the release of a new open-source online currencysystem, which he (or she) called Bitcoin. Bitcoin has gained widespreadrecognition through online media, and despite high volatility it remains amarginal but distinctive financial asset (Moore and Christin 2013).
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It isundoubtedly the most significant intervention in the field of Cryptocurrencies (electroniccurrency). Many say bitcoin is a cryptocurrency which is clearly andindisputably a gigantic’ bubble’ that’s set to burst. But what exactly is abubble? “ A speculative bubble is a peculiar kind of fad or social epidemic thatis regularly seen in the speculative markets; not a wild orgy of delusions buta natural consequence of the principles of social psychology coupled withimperfect media and information channels”(Robert Shiller 2013)Rogoff (2017)mainly argues that this bubble will burst under government pressure. This essayaims to critically evaluate the arguments present in Rogoff’s article bydrawing on claims from other secondary articles and my research on the topic. SECTION 1: SUMMARY OF ROGOFF (2017)The articlemainly underlines the fact that Bitcoin is bubble which would possibly burst ifthe government steps in to regulate it. It begins with a rhetorical notequestioning the status of Bitcoin on whether the cryptocurrency is a bubble ora great investment in the new-age of financial technology .
Rogoff is confidentthat the technology i. e. Block chain will continue to thrive but the price ofBitcoin would crash. He agrees; although the technology is easy to duplicate, however it is difficult to replicate a similar credibility and large applicationsof ecosystem that have been created and established by Bitcoin. He states thatexperts agree that the ingenious technology behind virtual currencies may havebroad applications for cybersecurity, which could be used to improvecybersecurity and develop a more secure payment mechanism.
Many think thatbitcoin will never be allowed to supplant national currencies; as large-scaleanonymous transactions could make it extremely difficult for the government tocollect taxes and could give rise to issues such as tax evasions and othercriminal activities. Rogoff states that Governments cannot overlook theseproblems and thus there are possibilities that the government would soon needto step up and regulate bitcoin systems and argues if this happens then bitcoinwill be stripped of its near-anonymity characteristics and its price willcollapse. However he foresees that the price of bitcoin would perhaps not fallto zero even if it were regulated since bitcoin transactions amount to muchless as compared the fees charged by big banks on its transactions. As said byRogoff it would not be hard to see banks creating digital currencies of theirown thus tilting the game towards them in a win-win situation.
He states; looking at the history of currencies the private sector innovates but eventuallyit is regulated by the state. Bitcoin is agame changer in the name of currency and challenges the authority and power ofgovernment backed fiat currencies. The fact that it is backed by nothingquestions the state of its purpose and continuity.
SECTION 2: BLOCKCHAINThere is nodenying on Rogoff’s claim that the technology supporting Bitcoin i. e. Blockchainwould 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 astransaction in the records are public . The block chain is, in fact, a huge chain that consists of several blocks of transactions that occur at aparticular time period. It creates a timestamped chain of receipts and expenditures among every single participant ofBitcoin system and with such irrefutable proof, it’s not possible for anyone tocheat someone or indulge in double spending.
It is a digital leger that isdispersed across networks and is used in the cryptocurrency space to securelyrecord every transaction between users.(CNBC)It is aglobal online database that anyone with an internet connection can use. ‘ Unliketraditional databases — which are typically owned by big institutions; a blockchain doesn’t belong to anyone; and with an entire network of people monitoringit, cheating the system by faking documents, transactions and otherinformation is nearly impossible.'(CNBC) It is a decentralized publicledger that tracks every transaction in bitcoin’s history. In his articleRogoff confidently states that the Block chain technology will thrive even ifthe price of bitcoin collapses. The blockchain is the key innovation that makes Bitcoin both unique and ground-breaking.
SECTION 3: GOVERNMENT AND BITCOINRogoff’smain argument in the essay is that the bitcoin bubble will burst if thegovernment steps in to regulate it. Central Bank of the country is responsibleto regulate inflation and deflation in the economy through its power over thefiat currency. With Bitcoin challenging its way and getting more attention fromthe people than intended; Governments across the globe have been reacting withthis differently. In thissection I have highlighted the contradictory view of the Japanese and ChineseGovernment towards BitcoinJAPANJapan isarguably the most cryptocurrency-positive country, and has managed to become soby recognizing bitcoin as a “ legal means of payment”, but not as a traditionalcurrency. ‘ Bitcoin trade in Japan accounts for about half of the globaltrade volume. That number has surged since the government passed a new lawearlier this year, recognizing bitcoin as a legal form of currency ‘(CNBC, 2017).’Another factor contributing to a bitcoin boom in Japan: ultra-low interestrates from the central bank that has left investors looking for places to findreturns on their cash.'(Daily Mail, 2018) Thus bitcoin serves as the best optionfor an investment which gives great returns.