Federal Reserve Considering Digital Currency
Bitcoin has emerged as the leader in digital currency hitting over $11,000 on CoinMarketCap at the end of November and making headline news everywhere. The world has taken notice including the Federal Reserve who is starting to think about its own digital currency according to reports from Dow Jones.
With it’s meteoric rise Bitcoin has made cryptocurrency practically a household name, but are Americans ready to give up their cash and will the Fed offer digital currency in the near future?
Amid the Bitcoin frenzy, New York Federal Reserve President, William Dudley said at a conference that digital currency was “something we are starting to think about,” but that it was “very premature” to say anything concrete was in the pipeline.
Dudley is not the first Fed official to address the surging popularity of bitcoin, according to CNBC Philadelphia Fed President Patrick Harker, in remarks made at a conference in September, said he doubted bitcoin would ever undermine the U.S. dollar, primarily because it lacks the backing of a government.
Bitcoin’s “lack of backing” and rapid assent has stoked fears of a bubble that could burst, like the dot-com crash and housing market collapse that led to the financial crisis. So does it really matter if currency is physical or digital? According to a CoinDesk report. “The paper that’s in your pocket, that we call money, only has value because we believe it has value, because we believe the government stands behind it. Still, Dudley pointed out bitcoin is different in that it’s still a niche market. “Bitcoin is tiny relative to the amount of payment transactions that are executed in the United States,” he said.
What is Digital Currency?
Digital currency is a type of money available only in digital versus a physical form, such as coins and bank notes. Bitcoin and its alternatives are based on cryptographic algorithms, so these kinds of virtual currencies are also called cryptocurrencies.
Bitcoin a form of digital currency, is created and held electronically. No one controls it. In fact, it is decentralized, meaning that the bitcoin network isn’t controlled by one central authority as the system works without a central banker or single administrator.
Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
Additionally, Bitcoins are not printed, like dollars – they are produced by people, and increasingly businesses, running computers all around the world. It’s the first example of a growing category of money known as cryptocurrency. According to wikipedia, The network is peer-to-peer and transactions take place between users directly, without an intermediary. Traditional currency was based on gold or silver but Bitcoin is based on a digital ledger called blockchain which is shared by a volunteer network of connected computers.
Bitcoin’s growing influence on monetary systems and global commerce are set to be similar to the disruptive technology change we saw with the Internet’s ability to change the way we all communicate worldwide. Cryptocurrency and the blockchain technology it relies on has the potential to be a major disruptive technology not only in the FinTech industry but to our everyday lives.
Rather you agree with digital currency or you think cash is still king, Bitcoin has emerged and the world including the Federal Reserve is taking notice. What do you think about the news that the Fed is considering digital currency?