Humanity has used money as a medium of exchange since the dawn of civilisation. Cultures around the world developed the use of "commodity" money, whose use was first recorded in Mesopotamia circa 3000 BC. Societies in the Americas, Asia, Africa and Austra
Fast forward to the 21st century and a new money revolution could be just around the corner. Our hi-tech society has spawned a digital currency called the Bitcoin. It was created in 2009 by “Satoshi Nakamoto” – but no one knows exactly who this person or group is.
Bitcoin transactions are made with no middlemen, meaning no banks! There are no transaction fees and no need to give your real name.
In developed economies, more merchants are beginning to accept them. Bitcoins can be used to buy everything from web-hosting services to pizza and even manicures – and all anonymously. Meanwhile, international payments are easy and cheap because Bitcoins are not tied to any country or subject to regulation. Small businesses might like them because there are no credit card fees.
Some people buy Bitcoins as an investment, hoping they will increase in value. Marketplaces dubbed Bitcoin exchanges allow people to buy or sell the digital money using different currencies. Mt.Gox is the largest, with one Bitcoin currently worth around US$950.
Bitcoins are stored in a “digital wallet”, which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive Bitcoins, pay for goods or save their money.
Unlike bank accounts, Bitcoin wallets are not insured by the FDIC, a deposit insurance agency in the US. Though each Bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps Bitcoin users’ transactions private, it also lets them buy or sell anything without leaving much of a trace. That’s why it has become the currency of choice for people online drug deals or other illicit activities. This, in turn, explains authorities’ backlash against the use of the currency.
Right now, no one knows what will become of Bitcoin. It is still mostly unregulated, but that could change. Governments are concerned about taxation and their lack of control over the currency. The world of markets and finance might not be the same after the introduction of Bitcoin. National sovereignty could be at stake.
Fearing the worst, on December 5 China’s central bank moved to regulate the virtual currency, barring financial institutions from handling Bitcoin transactions. The People’s Bank of China banned financial institutions and payment companies from offering pricing in Bitcoins, buying and selling in the virtual currency and insuring Bitcoin-linked products. In Thailand, it seems the authorities have also ruled that it is illegal to use, buy or sell Bitcoins, or to send or receive them to or from anyone outside the country.
However, there are countries where the digital cash can be legally used. The Australian government has been pretty warm towards the currency, allowing companies to trade in, buy and “mine” Bitcoins.
Bitcoin transactions are also legal in Canada, where they are taxed. In Germany, the Finance Ministry announced last August that Bitcoin is now essentially a “unit of account” and can be used for the purpose of tax and trading in the country. But the European Union has warned that Bitcoin lacks consumer protections. The US remains unclear on its position.
The world is changing rapidly and it seems inevitable that we must prepare for the concept of money to follow suit.
Chodechai Suwanaporn is executive vice president, Corporate Strategy, PTT Plc.