Beyond heads and tails: bitcoin pushes boundaries

Imagine a world without physical money or banks, where financial transactions take place between the payer and the receiver directly—no intermediaries involved. This is the world of bitcoin, a digital currency that gained widespread media attention after a massive cyber attack in May, when hackers hijacked data from computers, demanding a ransom in bitcoin.

While bitcoin still remains largely unknown to most people in Brazil, its user base is growing steadily. The first step to using it is to register with one of the websites that offer bitcoin services on the web. Then, the user creates an account with an encrypted personal code. The next step is to buy the digital currency.

Caio Fischer, a 38-year-old public employee, first heard about bitcoin while browsing a webpage on economy. “I had my savings, but I wasn't familiar with the concept of digital currency. I invested R$500 and within six months it had yielded nearly a hundred percent interest,” he recalls.

In addition to transfers and investments, many people use bitcoin to carry out ordinary commercial transactions. In this case, two codes are generated for the buyer's and the merchant's wallet. Using data from these two codes, a “miner” validates the transaction. This process takes about 10 minutes to complete.

According to Maria de Lourdes Rollemberg Mollo, an Economics professor at the University of Brasília (UnB), bitcoin does not play the same role as money. While it can be used the way money is used for carrying out transactions as a medium of exchange, they are not regarded as a good store of value. “People don't easily have bitcoins in amounts that can make it a common currency, or a national currency,” she explained.

Gabriel Aleixo, a researcher at the Institute of Technology and Society of Rio de Janeiro, has a different perspective. In his opinion, as people grow skeptical towards traditional financial currencies and the possibility of new financial crises, bitcoin tends to grow worldwide as a means of storing value.

“I believe more people will begin to keep a part, albeit a small one, of their savings and investments in bitcoin as a way of retaining value in something that's independent from the traditional system, since this currency is protected from bad monetary policy because the code is still as rigorous as when [bitcoin was] originally programmed,” he said.

Future

Professor Rollemberg believes governments will continue to play an important role in controlling currencies to secure them and provide security for users. In her opinion, bitcoin could become more widespread in the future, but not as much as national currencies are.

“A complete currency system has features that bitcoin can't have, particularly the widespread social recognition it would require to circulate anywhere,” she explained.

Aleixo, in contrast, says bitcoin and other decentralized digital assets are more easily assimilated by “digital natives” i.e. young people who have been Internet users from a very young age. In his view, the notion of money as something not bound by technology is an archaic concept for these young generations.

He explained that the reference applications used in the bitcoin protocol are fully open source, which means they can be reviewed by anyone. “As we usually say, with bitcoin, you are your own bank. This makes the system freer and more efficient, because only you can access your money, and you are safe from abusive transfer fees, capital controls, or denial of transactions to particular users.”

He doubts any countries would turn away from their official currencies, but he does expect some level of acceptance of the bitcoin system—at least when it comes to buying online.

In Brazil, service providers and businesses in a wide range of fields already use bitcoin, and corporations including Dell and Microsoft accept bitcoin payments in some of their markets.

Translated by Mayra Borges