The paper "Differences between Bitcoin and Traditional Money, Potential for Bitcoin to Compete with Fiat Money" is a good example of a finance and accounting coursework. Money is anything that is acceptable as a medium of exchange. Bitcoin is a form of digital currency that was designed to allow direct pseudonym transactions between two willing parties in a decentralised system, without the need of a third party such as a clearinghouse or bank. The currency is one of the most prominent forms of digital currency as indicated by growing consumer acceptance. Money must satisfy four basic functions.
First, it is a medium of payment; it can be used to make payments for goods and services (Lannoye 24-25). Money also serves as a standard of deferred payment thus enabling delayed payments or payments in the future (Lannoye 24-25). It is on this premise that capital markets and other financial intermediaries are founded. It also serves as a store of value; a store of today’ s purchasing power (Lannoye 24-25). It is however not the only store of wealth. Other assets, which serve the same role, include stocks and bonds.
Nevertheless, money has an unmatched advantage, which is liquidity. It must also serve as a unit of account for it to serve as a medium of payment. Characteristics of Bitcoin make it a form of money. It is currently being used as a medium of exchange especially in online transactions and gaining acceptance in brick and mortar enterprises as well mainly due to the ease of transaction, safety and low cost of transactions (Bitcoin). Bitcoin is also used as a store of value. It is however vulnerable to fluctuations but so are other assets such as stocks, which serve the same role.
Its reliability as a store of value and medium of exchange has however been debatable given that it has no central issuance, no regulation, and unpredictable volatility (CNN Money). Bitcoin also qualifies as a type of money by virtue of the fact that it is divisible, portable, and durable and has recognisable value (Lannoye 24-25). Differences between Bitcoin and Traditional Money Bitcoin is decentralised. Unlike traditional money where a central authority is solely responsible for the issuing and regulation of currency, Bitcoin is created through a mining process (CNN Money).
The process entails the use of a combination of hardware and software tools to solve mathematical problems of a complex nature and in return the gets rewarded with bitcoins (CNN Money). Therefore, Bitcoin neither derives its worth from a government authority nor an underlying commodity but rather on the market principles of supply and demand (Bitcoin). On the contrary, a government authority, mainly central bank, determines the value of traditional money although market forces also play a part. Bitcoin offers privacy and security.
Users only require an address containing no link to any personal information. A private key accompanies each address, and only the owner of the latter knows the key (CNN Money). In making a transfer of bitcoins, the sender just needs an address of the recipient. The sender sends his public key to the recipient and verifies it using his private key (CNN Money). Payments using traditional currencies, on the other hand, involve debit and credit cards and bank accounts that contain personal information.
Electronic money transfer platforms also require personal information of the sender and receiver.
Bitcoin. Bitcoin is an innovative payment network and a new kind of money. 2016. Web. April 25, 2016.
CNN Money. What is bitcoin? 2016. Web. April 25, 2016.
Coindesk. Price and data. 2016. Web. April 25, 2016.
Guttmann, Benjamin. The bitcoin bible: All you need to know about bitcoins. Books on Demand. 2013, Print.
Lannoye, Vincent. The history of money for understanding economics, 2nd edn. Vincent Lannoye. 2015, Print.
Swan, Melanie. Blockchain: Blueprint for a new economy. O’Reilly Media, Inc. 2015, Print.