Bitcoin International Finance

1. Bitcoin is a unique nature of virtual currencies, there are some costs and advantages of transaction through Bitcoin that users of other currencies do not get. Digital currencies are a relatively new and untested medium of exchange. Therefore, users should be careful to weigh their benefits and risks. 

The advantages of using Bitcoin for transaction are:

1. Very low transaction fees

Standard wire transfers and foreign purchases normally involve fees and exchange costs. Since Bitcoin transactions have no intermediary institutions or government involvement, the costs of transacting are kept very low. Moreover, any transaction in Bitcoins happens quickly and get rid of the inconvenience of typical authorization requirements and wait periods.

1. Purchases Are Not Taxed

Since there is no way for third parties to intercept transactions of Bitcoins, there is no way to implement a Bitcoin taxation system. Bitcoin is that sales taxes are not added into any purchases. If someone voluntarily sends a percentage of the amount as tax, that would be an only way to pay tax.

1. No Third-party Interruptions

There is no third-party such as governments, banks and other financial intermediaries to interrupt user transactions or freezes the Bitcoin accounts. The system is purely peer-to-peer. There is no central authority figure in the Bitcoin network. Thus, users of Bitcoins will have complete freedom to do anything they want with their money.

1. User Anonymity

The information is transparent and personal information is hidden. His purchases are never being linked with his personal identity and no one can trace their transactions unless a user voluntarily reveals his Bitcoin transactions. Bitcoin protocol cannot be manipulated by any person, organization, or government because of the Bitcoin being cryptographically secure.

1. Bitcoins Cannot be Stolen

Bitcoins’ ownership address can only be changed by the owner. Nobody can steal Bitcoins unless they have physical access to the user’s computer and send the bitcoins to their own account. It is different with conventional currency systems which only a few authentication details are required to gain access to finances. This system requires physical access so makes it more difficult to steal. Therefore, Bitcoin is safer.

1. No Risk of “Charge-backs”

Once Bitcoins are sent, the transaction cannot be reversed because the ownership address of Bitcoins will be changed to the new owner. It is impossible to revert once it is changed. Only the new owner can change ownership of the coins since only he or she has the associated private key. This ensures that there is no risk involved when receiving Bitcoins.

The costs of using Bitcoin for transaction are:

1. Lack of Awareness & Understanding

Bitcoin is still too new because it is only few years old. Many people are still unaware of digital currencies and Bitcoin. Businesses are accepting bitcoins because of the advantages, but it is still less compared to physical currencies.

1. Risk and Volatility

Bitcoin has volatility because there is a limited amount of coins and the demand for them increases day by day. However, it is expected that the volatility will decrease as more time goes on. As more businesses and trading centres and medias start to accept Bitcoin, its’ price will finally settle down. Currently, Bitcoin’s price is going up so fast. A web shop would have to adjust their prices almost every day if they wanted to accept Bitcoins. It is not very convenient.

1. Hard to trade

People cannot just use a credit card to buy Bitcoins online. There is no easy way to buy them or sell them. There are many exchanges that offer such services in various ways, but it's not as easy as transferring money to and from a PayPal account just yet. This is likely to improve fast as more services will compete to offer convenient solutions.

1. Still Developing

Bitcoin is still at its infancy stage with incomplete features that are in development. New features, tools, and services are currently being developed to make the digital currency more secure and accessible. Bitcoin has some growth to do before it comes to its full and final potential due to the Bitcoin is just starting out. It needs to work out its problems just like how any currency in its beginning stage would need to.

1. Easy to lose

There is no mechanism to recover lost or stolen Bitcoins if you lose Bitcoin. If somebody hacks into your wallet where you store your Bitcoins you lost them for good. The best way to store your Bitcoins is on disk that is disconnected from the internet.

2. According to economic theory, a true currency must be capable of serving as a unit of account, a medium of exchange and a store of value. Does Bitcoin fulfill these criteria?

Economists define true currency as a store of value, a medium of exchange, and a unit of account. Based on the economic theory, Bitcoin does not fulfill all three criteria as of now, and therefore it is not yet a true currency.

Bitcoin is a medium of exchange because many groups of people are willing to accept Bitcoin in exchange for goods and services. Besides that, one of the main criteria for something to function as a medium of exchange is that it has to be durable and portable. As Bitcoin is virtual, therefore it fulfils these functions. Other than that, Bitcoin is not a store of value. The most important feature of a currency is that it has a stable store of value. Therefore, Bitcoin is not a store of value because its’ value and buying power is unstable and has not remained relatively constant over time. Based on the graph provided in this case study, it clearly shows that Bitcoin’s value is very volatile. For example, the price of Bitcoin in relation to US Dollars skyrocketed to almost US $1238 in 2013 and then plummeted. Due to the volatility, this limits the ability of Bitcoin to act as a stable store of value.

Bitcoin is not a unit of account. A unit of account in economics is something that can be used to value goods and services, record debts and make calculations. In other words, it is a measurement for value. The three important characteristics of a unit of account is divisibility, fungibility and countability. The volatile values of Bitcoin prevent it from becoming a unit of account. Even the few retailers who accepts Bitcoin use other currencies as their principal accounting unit. The prices of Bitcoin are also given in the prominent fiat currency like US Dollars and the Bitcoin price fluctuates with changes in the cryptocurrency-money exchange rate. Bitcoin is also not recognized as a unit of account in most of the countries around the world. The only country to officially recognize Bitcoin as a unit of account is Germany. South Korea has announced that it does not recognize Bitcoin as a legal tender, while other countries have remained silent on the subject.