Puzzled over how a blockchain is mined, how Bitcoin is valued, or who is in charge of it all? Doing an online search for those answers may leave you with more questions, and far more confused.
Economics professor Jesus Fernandez-Villaverde discussed the arc of private currency to government regulated currency, and the current momentum of private cryptocurrency like Bitcoin in Omnia Magazine.
To start, Bitcoin is not the first private monies. In the United States, the federal government did not take over bank-issued currency until the 19th century. Since the advent of the internet, the idea of privatized monies became feasible again, since a large percentage of financial transactions are now done online.
Cryptocurrency currently operates outside any government oversight. People who are averse to government regulation of their financial transactions (for example, libertarians or criminals) are more likely to embrace something like Bitcoin. But it is also a welcome financial tool for someone who feels their own government’s currency is unstable. Cryptocurrencies take the government out of currency, giving it a universal transactional value with no need for an exchange rate.
Fernandez-Villaverde manages to simplify a working definition of blockchain for the uninitiated. Block chains are a ledger. And the mathematical “question” that block chain “miners” solve is akin to balancing the ledger. The chain, however, is constantly growing. And, he warns, can grow so big it can become a target.
Like the stock market, cryptocurrency values are subject to peaks and crashes. Whether it should be regulated like the stock market is up for debate. But it is a debate that Fernandez-Villaverde implores the next generation of economists, lawyers, and financial players to pay close attention to.
Read the full story at Omnia.