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The Influences of Bitcoin on Society and the Economy

Research PaperTechnology

The popularity of Bitcoin as a digital asset has resulted in innovations that greatly influence society and the economy. Individuals and even higher institutions are accepting Bitcoin as a legitimate payment method and a valuable commodity. This leads to various changes in society’s perception regarding cryptocurrencies. Additionally, new forms of technology have emerged due to the continuous development of Bitcoin, altcoins, and blockchains. Experts are utilizing these technologies to create a new genre of applications. They adapt blockchain technology to develop highly secured digital spaces that benefit various fields from the tech industry to medicine. Bitcoin’s influences on society have led to the development and widespread utilization of blockchain technology while its effects on the economy mainly focus on its potential as an inflation hedge and a valuable commodity.

Bitcoin Definition and History

Bitcoin is the first and most valuable type of digital currency. While many individuals may assume that the term Bitcoin and cryptocurrency are interchangeable, it is important to note that Bitcoin is a type of cryptocurrency. It possesses the same characteristics as other cryptocurrencies with some slight variations in their usage. Some cryptocurrencies are mainly valuable inside a digital space while others may have value in the real world. As a cryptocurrency, Bitcoin does not have a physical form. An individual can only acquire, exchange, and store Bitcoin inside a digital space. As a cryptocurrency, Bitcoin is a decentralized digital currency that operates within a blockchain. Its value is dependent on the speculative interest of the public market. These factors have led to Bitcoin’s growth which allowed the currency to gain a value of around 60,000 US dollars per Bitcoin.

Bitcoin’s history began when an anonymous individual registered the domain name Bitcoin.org on August 18, 2008. Until today, the public does not know the real name of the anonymous individual that created and released Bitcoin. However, this anonymous individual or group used the pseudonym, Satoshi Nakamoto, when they sent out announcements regarding the development of Bitcoin. On October 31, 2008, Satoshi Nakamoto announced to the public that they are working on a new electronic cash system which was Bitcoin. They later published Bitcoin’s white paper on Bitcoin.org with the title “Bitcoin: Peer-to-Peer Electronic Cash System”. This white paper included significant information regarding the use of the new cash system. Later in 2009, Satoshi Nakamoto mined the first 50 Bitcoins which experts dubbed the “genesis block”. Satoshi Nakamoto later sent 10 Bitcoins to Hal Finney which became the first Bitcoin transaction in history (Chohan, 2017). Since the mining of the genesis block, Bitcoin experienced various challenges which caused its value to fluctuate. During the early stage of Bitcoin, 10,000 Bitcoin was equivalent to two Papa John’s pizzas. Today, one Bitcoin is equivalent to around 60,000 US dollars. This showcased the significant influence of Bitcoin on digital currencies and the public’s acceptance of cryptocurrencies.

Difference Between Bitcoin and Other Cryptocurrencies

Bitcoin’s success and high value led to the creation of other cryptocurrencies. Currently, there are more than 14,000 types of cryptocurrencies in the market (Frankenfield, 2021). However, many individuals are still unsure of Bitcoin’s and cryptocurrency’s definitions. As mentioned earlier, some individuals believe that the two terms are interchangeable. This is a common mistake since the success of Bitcoin led to the continuous growth of the crypto market. Additionally, the crypto market uses the term “altcoins” to refer to cryptocurrencies that are not Bitcoin. This generalization is due to the common characteristics of cryptocurrencies as well as the fact that Bitcoin pioneered the crypto industry.

Aside from Bitcoin and altcoins, individuals can categorize cryptocurrencies as crypto coins and crypto tokens. Crypto coins are cryptocurrencies that have their own blockchains, such as Bitcoin (BTC), Binance Coin (BNB), and Ether (ETH). The second category is crypto tokens which are cryptocurrencies that are dependent on other blockchains and crypto coins. The most common examples of crypto tokens are NFT video game currencies, such as Small Love Potion (SLP), and Cryptoblades token (SKILL). As per the example, Bitcoin is a crypto token and operates under the Bitcoin blockchain. This means that Bitcoin has its own networks of public computers that mine, oversee, and validate transactions regarding the cryptocurrency. Other crypto coins like Binance Coin, have the Binance Smart Chain which operates similarly to the Bitcoin blockchain but for Binance Coin-related transactions. This is one of the significant differences between Bitcoin and other cryptocurrencies.

Another difference between Bitcoin and other cryptocurrencies is their different utility. Satoshi Nakamoto released Bitcoin as a new cash system that individuals can use as an alternative payment method. Some cryptocurrencies have other uses aside from acting as digital currencies. For example, the cryptocurrencies Tether (USDT) and Binance USD (BUSD) act as “stablecoins”. This type of cryptocurrency maintains the same value as the US dollar which allows users to keep cryptocurrency while still avoiding the market’s high volatility. Individuals can use these cryptocurrencies to store their money in a blockchain that is more secure and offer higher interest than a bank (What is a Stablecoin, n.d.). Other examples are meme tokens, such as the CateCoin (CATE) and Dogecoin (DOGE). Meme tokens are cryptocurrencies that do not have a particular use except to act as a joke or meme. While individuals purchase these currencies as a joke, some communities have utilized meme tokens to fund charity projects. These different and unique characteristics separate other cryptocurrencies from Bitcoin.

Societal Effects of Bitcoin

Since Bitcoin’s release in 2009, the cryptocurrency pioneered technological advancements, such as new cash systems and blockchains. Its success motivated individuals to establish new cryptocurrencies and fully utilize blockchain technology. The decentralized characteristic of Bitcoin and other cryptocurrencies allowed the public to dictate a commodity’s monetary value as well as establish a new form of wealth. Bitcoin’s societal effects include innovations regarding blockchain technology and a profitable investment opportunity for its users.

Security in Communication

The creation of Bitcoin and blockchain technology allowed experts to develop enhancements in communication security. Blockchains allow their users to store uneditable and undestroyable data. Experts utilize this technology to create services that are highly secure from hacking and wiretapping. The communication services Bitmessage and Twister utilize this feature to offer a highly secure medium of communication for their users (Philips, 2021). This new form of communication system is a better alternative to traditional communication mediums. Hackers, government institutions, and service providers can easily access information from traditional mediums like email, texts, and phone calls. This gives individuals less privacy and less secure communication systems. With blockchain technology, communication services can offer resource sharing, trusted data interaction, secure access control, privacy protection, tracing, and supervision.

Secure Digital Storage Space

The highly secure characteristic of blockchain technology provided users with secure digital spaces. Since the information in a blockchain is permanent, individuals can store any information in the system without the risk of accidentally losing it. Additionally, blockchains allow individuals to trade digital assets without the fear of counterfeiting (Aste et al., n.d). Fields like medicine, banking, finance, and real estate can utilize blockchains to store sensitive information and keep them private. Doctors and medical institutions can use blockchains to store confidential patient information. Individuals that purchase cryptocurrencies and NFTs utilize blockchains to store their highly valuable digital assets with a low risk of hacking. Another good example of blockchain as a secured storage space is in the food business industry. Food suppliers can store product information in a blockchain. The information can include a product’s expiration date, ingredients, and origin. Retailers can then access the information which assures them of the product’s quality. The permanent information in the blockchain secures the legitimacy of the information and avoids tampering which promotes transparency between parties.

Bitcoin-Based Games and Other Crypto Video Games

Bitcoin-based and other crypto video games are some of the most influential effects of Bitcoin. These types of games allow players to earn cryptocurrencies by playing. They can then exchange the cryptocurrencies into fiat money which becomes a profit for the players. Currently, most Bitcoin-based video games offer Bitcoin as a reward. Most do not operate under the Bitcoin blockchain but simply award game winners with Bitcoin. However, this model led to the creation of NFT video games. These NFT video games utilize NFTs or non-fungible tokens as gameplay assets that players can purchase, sell, or trade with other players. This new video game genre has caused individuals to earn an income through playing a game. During the peak of the NFT game Axie Infinity, players in the Philippines were able to earn more than the country’s minimum wage by playing a couple of hours a day. This led a lot of individuals to invest in the game and caused the popularity of crypto games.

High-Energy Consumption from Bitcoin Mining

While the previous societal impact of Bitcoin focuses on positive effects, the creation of the cryptocurrency has also harmed society in a few ways. One of the main negative effects is the high energy consumption of Bitcoin mining. The high energy consumption of Bitcoin mining contributes to the global energy crisis. According to Cho (2021), a Bitcoin transaction consumes around 707 kWh. To put this in perspective, one kWh is equivalent to watching a show on a plasma TV for three hours.

Additionally, the University of Cambridge reported that Bitcoin mining consumes 121.36 TWh per year which is more than the combined consumption of Google, Apple, Facebook, and Microsoft (cited in Cho, 2021). While the high energy consumption greatly contributes to the energy crisis, it also produces high volumes of CO2 emissions which causes global warming . More so, Bitcoin mining requires miners to continuously upgrade their systems to efficiently acquire Bitcoin. This leads miners to discard old electronics which yields a high volume of electronic waste. These factors showcase the severe negative impact of Bitcoin on society and the environment.

Economic Effects of Bitcoin

Since Bitcoin and other cryptocurrencies have monetary values, they have impacts on a country’s economic condition. The high value of cryptocurrencies, as well as the decentralized blockchains, results in unregulated transactions of wealth that governments and financial institutions cannot oversee. This provides cryptocurrencies with economic benefits and disadvantages that are unique to the market. The decentralized system allows the public to be the dominant decision-makers regarding a cryptocurrency’s value, however, the decentralization also results in irreversible and unregulated transactions.

Bitcoin as an Inflation Hedge

The decentralized characteristic of blockchains and cryptocurrencies allows Bitcoin to be inflation-resistant. Bitcoin can serve as an inflation hedge since its value comes from market speculation and its supply (Huang, 2020). Individuals can invest in Bitcoin or other cryptocurrencies and secure their wealth through the blockchain. Since cryptocurrencies’ values are dependent on speculative interest, inflation will not affect their market price. A recent example of this inflation resistance is the crypto market’s continuous growth despite the economic effects of the coronavirus pandemic . However, it is important to note that the cryptocurrency market is a volatile environment which can lead to a sudden decrease in Bitcoin’s price. As of writing, Bitcoin’s value has decreased to around 57,000 US dollars from more than 60,000 US dollars in the past few months. This indicates that while Bitcoin is currently an effective inflation hedge, individuals must be wary of the potential effects of the market’s volatility.

Bitcoin as a New Investment Option

Bitcoin and other cryptocurrencies have become great investment options due to the increasing popularity of the market which further contributes to the high value of certain currencies. The value of Bitcoin and cryptocurrencies comes from market speculation which can cause a significant increase in their values. For example, one Bitcoin was worth less than a dollar or around 0.0008 US dollars during its early stage. Today, one Bitcoin is worth around 60,000 US dollars. This means that individuals who invested in Bitcoin during its early stage have experienced a substantial increase in their portfolio. Aside from Bitcoin, other cryptocurrencies are experiencing price fluctuations which can potentially benefit early investors. As new types of cryptocurrencies enter the market, investors will have more investment options that have the potential to become profitable as Bitcoin.

Bitcoin as an Efficient Payment Method

Satoshi Nakamoto introduced Bitcoin as a new cash system that the public can use without the need for a third-party institution to regulate the transactions. Currently, the popularity of cryptocurrencies has persuaded various businesses, such as Paypal, and Coca-Cola Amatil, to accept them as payment methods. Bitcoin and other cryptocurrency transactions provide lower transaction fees and a fast payment process (Reiff, 2021). Their decentralized characteristics allow individuals to avoid credit card fees that take a certain percentage from an account. Additionally, since cryptocurrency transactions occur within the digital space, the process for local and international transactions is the same. This includes the duration of the transaction and the transaction fees. Since Bitcoin and other cryptocurrencies are decentralized, banks and other institutions do not regulate the transactions making the process simpler. However, decentralization also allows illegal transactions to occur. With no centralized regulators, individuals cannot reverse their transactions which scammers can utilize.

Future Implications of Bitcoin

Currency in the International Trade

Since Bitcoin and other cryptocurrencies offer fast transactions and lower fees, they greatly benefit international transactions. Citi, an international bank, stated that Bitcoin has the potential to become the main currency in international trade (cited in Sharma, 2021). Businesses can utilize Bitcoin as a common commodity in international trade. Instead of converting physical currencies to other currencies, individuals can directly indicate the price of the transaction in Bitcoin. For example, an entrepreneur will need to convert the Japanese Yen to US dollars which can cost additional fees. With Bitcoin, an entrepreneur can directly send the cryptocurrency to the receiver’s crypto wallet without the need for conversion and additional fees. This will allow international businesses to save on their overall cost and have a uniform currency in the trade.

Government Regulations Regarding Cryptocurrencies

Despite cryptocurrencies operating in a decentralized system, certain legislations and regulations can still affect the crypto market. As Bitcoin and other cryptocurrencies become more popular, they become threats to traditional financing systems. According to Flitter (2021), the Bank of America patented hundreds of digital payment technologies in an attempt to lose against the cryptocurrency trend. While this action does not directly regulate cryptocurrencies, it provides a hindrance to innovations in the industry. Additionally, some banks do not allow their users to transact with crypto-related platforms. They automatically decline these types of transactions to dissuade the use of cryptocurrencies. However, as society slowly accepts the value of cryptocurrencies, the banking industry is also slowly accepting the trend and is becoming more crypto-friendly.

Conclusion

Bitcoin began as a low-value cash system and the first cryptocurrency in the market. Satoshi Nakamoto’s creation of Bitcoin introduced blockchain technology which became one of the foundations of the crypto industry. As individuals began to utilize Bitcoin as a digital currency, its value increased and eventually became a highly valuable asset. Bitcoin began to have significant societal and economic impacts that changed daily life. Bitcoin’s social impacts led to the development of secured communication systems, secured digital spaces, and the creation of profitable crypto games. Its economic influences provided individuals with a new inflation hedge, investment option, and efficient payment method. Additionally, the creation and continuous operation of Bitcoin provide prospective implications that can result in various societal and economic changes.

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