Abstract
In recent years, internet-born virtual currencies like Bitcoin have gained significant global attention. As a decentralized, limited-supply digital asset, Bitcoin exhibits strong monetary attributes through features such as digital storage, anonymity, and cryptographic security. This paper explores whether Bitcoin fulfills traditional monetary functions, analyzes its challenges, and discusses its future potential as "Gold 2.0."
1. Introduction
1.1 Research Background
- Originating in 2009 post-financial crisis, Bitcoin pioneered decentralized currency via blockchain technology.
- China dominated early Bitcoin markets (95% of global trading volume in 2013) before regulatory restrictions in 2017.
- Global adoption varies: Japan legalized Bitcoin (2017), while CBOE launched Bitcoin futures, signaling institutional acceptance.
1.2 Significance
This study examines Bitcoin's viability as:
- A value store (limited supply mimicking gold)
- A transaction medium (low-cost cross-border payments)
- A challenge to fiat currencies' centralized control
2. Bitcoin's Fundamentals
2.1 Key Characteristics
| Feature | Description |
|---|---|
| Decentralization | No central authority; P2P transactions via blockchain |
| Fixed Supply | Capped at 21 million BTC, preventing inflation |
| Anonymity | Pseudonymous transactions via ECDSA encryption |
| Divisibility | Up to 8 decimal places (0.00000001 BTC = 1 Satoshi) |
2.2 Monetary Attributes
Bitcoin demonstrates five key monetary functions:
- Value Measure: Price volatility remains a challenge (e.g., $0.30 to $16,500 fluctuations).
- Exchange Medium: Used for goods/services (e.g., Virgin Galactic space travel bookings).
- Payment System: Enables microtransactions and smart contracts.
- Store of Value: Scarcity drives investment demand, though speculative trading dominates (~80% of daily transactions).
- Global Currency: Reduces forex costs but faces regulatory fragmentation.
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3. Challenges
3.1 Incomplete Monetary Functions
- Volatility: Price swings hinder stability (e.g., 2017's 1,900% surge).
- Deflation Risk: Fixed supply contradicts growing economic demands.
- Adoption Barriers: Security breaches (e.g., Mt.Gox hack) erode trust.
3.2 Regulatory and Technical Hurdles
- Lack of governmental monetary controls.
- Competing theories: Hayek’s free currency vs. modern credit systems.
4. Future Outlook
Bitcoin represents a paradigm shift in monetary theory but requires:
- Improved price stabilization mechanisms.
- Enhanced security protocols for exchanges.
- Clearer global regulations to foster mainstream adoption.
As decentralized finance (DeFi) evolves, Bitcoin may catalyze broader currency innovations beyond its current role as a speculative asset.
FAQs
Q: Can Bitcoin replace fiat currencies?
A: Not currently—its volatility and limited supply restrict full monetary functionality.
Q: How does Bitcoin ensure transaction security?
A: Through blockchain’s immutable ledger and ECDSA encryption, though exchange platforms remain vulnerable.
Q: Why is Bitcoin called "digital gold"?
A: Its scarcity and decentralization mirror gold’s historical role, with added digital advantages.
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Conclusion
While Bitcoin’s revolutionary design redefines money, its long-term success hinges on overcoming scalability, regulatory, and stability challenges. The "seed" of decentralized currency has been planted—its growth will shape future financial systems.
Keywords: Bitcoin, monetary attributes, decentralization, cryptocurrency, blockchain
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