The success of bitcoin has been severely shaken in China but judgment on its fate should be based in a thorough understanding of the decentralized virtual currency, according to the Chinese-language Securities Times.
On Dec. 16, the People's Bank of China — China's central bank — issued an order barring third-party online payment platforms, including Alipay, from handling bitcoins. The coin's price promptly nosedived from 4,000 yuan(US$660) to 2,100 yuan (US$346).
Stricter oversight of bitcoin became effective after intense speculation pushed its price to a high of 7,395 yuan (US$1,220) a coin. The speculations could have resulted in a tremendous negative impact on the financial market and overall economic activity.
Yet bitcoin has not been rendered valueless just because the Chinese government curtailed its use, said the report. The currency, which is virtually impossible to counterfeit, immune to inflation and not limited by the central bank (and economy) of any country, poses a serious challenge to the status quo.
Bitcoins and their offspring have emerged as an example of competitive money advocated by Austrian-British economist Friedrich Hayek, who had proposed an alternative to a country's official currency as issued by the central bank.
The official currency issued by a country's national bank has a major flaw: stability. A country's official currency fluctuates and inflation often hampers economic development, the improvement of living standards and wealth distribution.
Examples of the impact from the manipulation of currencies and hyperinflation abound in history, said the report.
Bitcoin has its own flaw: lacking an authoritative creditor, such as a central bank that shores up the credibility of the currency. Credibility is instead placed in the hands of verifiers who authenticate the record of transactions against the money's algorithm for a small fee.
There are potential solutions to the intrinsic flaw, such as the establishment of a binding mechanism that has supervision over the currency's issuer and the buildup of trust in the currency. If the global trend is any indication, bitcoin is here to stay.
