It all started as a funny idea that hit us like a fly on a hot summer day. In recent years, the fly has continued to buzz louder and louder and doesn't go away. The billionaires had thrown it away from the start; however, many are starting to accept that it will exist in the future. Companies like Tesla, PayPal, and Square are also starting to accept Bitcoin and cryptocurrencies. So what is it? What are the advantages and disadvantages? Can it one day replace the dollar as the world currency?
What is Bitcoin?
Bitcoin was created by a mysterious person named Satoshi Nakamoto in 2008. It is a pseudonym, and no one knows who it is. Bitcoin is a cryptocurrency or a digital asset, which means you can't hold it tangibly. It exists on the Internet using blockchain technology, which uses computers to maintain a growing list of transactions. There is no central computer or server to monitor it, which means it is decentralized. For many pro-Bitcoin people, this concept is one of the main reasons they love cryptocurrencies. But, unfortunately, there are only 21 million Bitcoins, with around 18.5 million in circulation and two million that are left to be "mined."
One of the arguments in favor of Bitcoin is that there is only a finite number, which means that it cannot be extended in times of financial crisis and cannot be manipulated by governments. This is one of the main reasons the crypto crowd is so into its general usage. However, there are other cryptocurrencies that have the functionality to create multiple currencies. So why should Bitcoin be the "cryptocurrency of your choice"? Why was it the first?
Bitcoin Taxation
To date, Bitcoin is used almost entirely as a speculative investment and not as a currency. Very few companies allow the use of Bitcoin as currency in exchange for goods. The IRS has considered Bitcoin ownership, which means you have to pay taxes when you sell or trade Bitcoin. An example would be when Tesla started accepting Bitcoin as a payment method. Suppose you buy a Tesla for $80,000, and you pay $30,000 in cash and $50,000 in Bitcoin to buy it. If you bought this Bitcoin for $10,000, you now owe taxes on that $40,000 profit! This makes Bitcoin very difficult to use as a currency and one of the reasons it won't be replacing the dollar anytime soon.
A regulatory nightmare
Without a centralized way to protect cryptocurrencies against theft or hacking, consumers will not have the security necessary to exchange their US dollars for Bitcoin. There is no FDIC insurance for Bitcoin and nothing to guarantee Bitcoin against theft. To date, there are no more than three million of the 18.5 million Bitcoin in circulation. Without being able to see all the transactions and where they came from, it also creates a huge risk of money laundering. This would allow the financing of terrorism and drug trafficking. The blockchain ledger uses "codes" to name buyers and sellers of cryptocurrencies. Many believe that a large number of Bitcoin transactions so far have stemmed from the movement of illegal money and the government's inability to track cash flow. The IRS finds it difficult to collect taxes on these gains because most cryptocurrency exchanges do not report the cost basis.
On the contrary, the whole mantra of the crypto world is that there is no central government that distorts the money supply and no central computer system to monitor Bitcoin or other cryptocurrencies. Pro-cryptocurrency people believe that regulation will stifle innovation, manipulate cryptocurrencies, and create black markets, making Bitcoin even more difficult to stabilize. Therefore, trade support was not ideal for the government or regulators. Will the United States ever support a currency it cannot track?
Where do we go next?
Recently, a new type of 'online property' known as NFT, or non-fungible tokens, using the same blockchain technology as Bitcoin, became the latest topic in the world of digital arts, and they are selling for billions of dollars. However, remember that when you buy NFTs with cryptocurrencies, you have to pay taxes on the profits of the cryptocurrency, another regulatory nightmare and a way for criminals to try to launder gains.
The other thing to consider is that the amount of carbon emissions used in mining Bitcoin is dramatic. Therefore, there are many obstacles to how this concept becomes mainstream, especially with great effort to stop carbon emissions. So, where do we go from here? No one knows.
Will there be a world currency at some point in time? Maybe. Will it replace the dollar any time soon? Definitely not.
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