Growth of Bitcoin Community and Reaction from Governments
Bitcoin and other cryptocurrencies puts regulatory authorities on the Spot
Bitcoin is no more than five years old, yet it is already causing disquiet in the developed global economies. In the past couple of
weeks, a number of governments’ agencies have, in one way or another, tried to cripple Bitcoin’s operation in anticipation that the virtual currency might become the online legal tender. The most recently noted interference by the countries’ ruling organs include the announcement by U.S.’s IRS that Bitcoin is property rather than alternative foreign currency, and the rumors that China has given out a directive to shut activities of Bitcoin related companies. The question many people beg to ask is why many governments are afraid of encrypted currencies?
Until now there are a number of businesses that accept bitcoins for their products and services. This number has been increasing every single day. The growth of bitcoin community has put governments in awkward position, as failure to chip in will culminate to loss of revenues.
The people’s Bank of China has crippled the operation of cryptocurrencies, bitcoin in particular, by forcing banks and third party payment services companies to disassociate with bitcoin exchanges. Yesterday, virtually all exchanges operating in China had stopped their bitcoin related services, owing to behind the curtains interference by PBOC. PBOC could have just made it clear that Bitcoin is illegal, but it is trading on fairly slippery grounds, as such decision would only make bitcoin thrive in the black market. After all, nobody wants the government snooping around his/her activities.
In the U.S. the move by Internal Revenues Service has drawn as much criticism as the events in China. IRS decision to tax capital gains made in bitcoins transactions has turned transfer, or exchanging bitcoins for altcoins, into a nightmare. But if IRS declared that bitcoin is property, then why is FinCEN treating it as money? Can property be laundered?
Why Bitcoins and Altcoins are Gaining Popularity
There are a number of reasons why Bticoins and altcoins are becoming popular. However, the two main reasons are:
- Privacy: When you purchase goods or services using bitcoins, it is difficult for the transaction to be traced to you. However, the IRS believes this has given many the loophole to evade tax, and that is why it has come in.
- Cheap, quick and convenient money transfer: Cryptocurrencies have offered the best way to transfer money. The currency allows people to exchange or transfer money in a cheap, reliable and quick way, without having to use intermediaries like Visa, MasterCard or PayPal.
Bitcoins are created by through a complex process known as mining. The currency is mined in a predictable rate as computer algorithm limits its numbers. It works just like gold, but the latter has been around and is older than civilization. Gold is known and trusted globally as a store of value, yet it is not regulated by anyone or central authority. The price of gold is determined by the forces of demand and supply.
The same way, the price of Bitcoin is determined by the market forces, and it too is not regulated by any single central authority, but many people still don’t know about it. And even those who know about it still don’t trust it as a store of value owing to its rapidly fluctuating price. This is because bitcoin and cryptocurrency as a whole is a fairly new concept. The currency has not been around long enough to win the confidence of people. This explains why it has been highly volatile. Until it is well known, its value will still keep on fluctuating.