Let’s join the latest financial waveThe debate over Bitcoin has dominated online community pages and the financial media lately. The digital currency, which was worth almost nothing until April 2011, went up over $1,000 in November. It went on a roller coaster ride due to media hype, market attention and cynicism from regulators and experts. Optimism and pessimism swayed with its price volatility, building up to one big question: Can Bitcoin ever get recognized as a legitimate currency?
Bitcoin is a new money concept primarily used for e-commerce. Unlike other electronic payments such as credit cards and PayPal, it is not owned by a certain company or financial institution. Moreover, it has no controlling authority, like a central bank. The stateless money would be used as payment instead of U.S. dollars or euros. Because money can be transferred online, directly, anonymously and outside officialdom, it could be a low-cost and highly efficient mechanism for financial transactions. In a Senate hearing in November on the rise of the Bitcoin, U.S. Federal Reserve Chairman Ben Bernanke said virtual currencies that are currently beyond supervision “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.”
Bitcoin can be a platform to pave the way for uncharted waters in financial innovation and revolution. American and European venture investors are betting that Bitcoin could be the next protocol or operating system in digital financing. They are championing the currency’s invention as equivalent to Apple’s iOS and Google’s Android platforms, which drove the mobile revolution through smartphones.
Bitcoin should not be simply understood as an alternative to conventional hard currency. Traditional currency has been put to general use with legal and binding force with the birth of modern states. The supply and demand was established from the beginning. The currency then evolved through demographic and macroeconomic factors. Bitcoin is the first developing open-end universal currency in human civilization. It is unfair to compare the two currencies, which are intrinsically different in concept and origin. It is unreasonable to criticize a newborn bird because it cannot fly immediately.
In order to build the most cost-efficient accessible global financial network, an independent currency like Bitcoin is essential. Unlike traditional money, it is not printed by a central bank in view of the money supply and demand.
The supply of Bitcoin is determined by an algorithm that allows comports around the world to “mine” the currency at a set rate per day. There is a limit - about 21 million - to how many can ever be mined. There is no way to issue a flood of new Bitcoins and devalue those already in circulation.
Concerns about forgery have been eased due to a process system that involves a computer solving a difficult mathematical problem with a 64-digit solution. Users have surged astronomically over a few months. Korean and Chinese exchanges have been created. If the new capital market helps to breed funding for venture capital companies, the habitat will become richer.
The interest in Bitcoin is also triggered by skepticism and resentment toward the current financial system. The question over its viability and bubble-bursting won’t help produce developments in virtual innovation. Bitcoin is simply pointing toward the goal of a global innovative financial network and revolution.
Korea must find its role in the global experiment in the new financial wave. What would its leadership be? How can it fully employ its superiority in IT and content? These are the more important questions we should focus on.
Translation by the Korea JoongAng Daily staff.
*The author is a director of Korbit, Korea Bitcoin Exchange.
by Kim Jin-hwa