Bitcoin and the Future

Bitcoin is considered as a harbinger of Industry 4.0, digitalization and future financial relations by those who have difficulty in establishing the connection between finance and production, financial and real. It has started to come to the fore more and more lately. Its rapidly increasing value fell even faster and Bitcoin trading was stopped on some exchanges. Cryptocurrencies created in the digital environment are essentially similar to "free banking"-based money, which was practiced in 19th century Scotland, where each bank printed its own money, regardless of the sovereign.

Bitcoin is one of the cryptocurrencies that mediates the exchange between individuals and institutions, is not based on a certain physical entity, takes place outside state control and is produced over the internet. It has emerged as a medium of exchange since the early 2000s, and more recently it has begun to be used as an investment instrument. The Bitcoin-like currency called “Ether” has become the second most important monetary system among the crypto-currencies, the number of which has reached a hundred. As of June 2017, the total value of Bitcoins in circulation in the market reached 39 billion dollars. The above table shows the parity values ​​of crypto-currencies in US dollars as of September 15, 2017.


It seems inevitable that virtual money types such as Bitcoin, whose importance and amount are increasing today, will somehow enter our lives more in the future. This currency, made possible by the level reached by digital technology, will continue to attract attention if the stylish returns it provides continue. In a way, the value of Bitcoin is also related to the magnitude of leakages in the economy. To carry out financial transactions or simple money transfers with Bitcoin, parties do not need to disclose themselves or identify themselves to a financial institution. In other words, virtual money does not leave a "trace". Since there is no central system, there are no objections, returns or cancellations.

Sending Bitcoin from one person's Bitcoin wallet address to another wallet address takes seconds. Virtual money technology is considered crypto-secure because it is based on cryptography called Private-Public Key Chain and no one can reverse or break the equity (value) in it during the transaction. In order to own Bitcoin, or to send or receive Bitcoin to someone, or to use it in digital member businesses/institutions that accept virtual money, it is necessary to download the Bitcoin software to the computer. It is possible to get this service from companies that offer it in the form of a digital wallet. Additionally, you can make purchases and sales (cash-in and cash-out) from brokerage firms where you can convert them into other selling currencies.

Unlike coins and paper money, which are produced at a certain cost, virtual money is not produced at any cost. It occurs entirely in a digital environment. The expectation that Bitcoin-like cryptocurrencies will become widespread in the future encourages Central Banks to be ready today. If states develop an inclusive and regulatory reliable infrastructure service for these virtual and crypto virtual currencies, we can expect that each country will launch its own digital currency.

Bitcoin is one of more than a hundred currencies that use blockchain infrastructure. But only about ten of them are actively traded on the stock exchange. The most important factor that distinguishes this currency from other blockchain-using currencies is the transaction volume in the market. Blockchain, in short, is a database that provides encrypted transaction tracking and is based on distributing data. This dispersed database, where all information is recorded in blocks, linked together with advanced encryption algorithms, provides the opportunity to perform transactions without being connected to a center.

For example, while two banks only record the transactions they make with each other in their own systems, regardless of the number of copies, in the Blockchain system, these records are distributed encrypted to all computers participating in the system, and when a new transaction order arrives, a solution is provided with a quick verification process. Such verification both reduces transaction costs and provides an independent and secure recording system. Since Blockchain will carry technology and all sectors to a new era like the internet, it affects all sectors, from content to copyrights, notary service for second-hand sales, health, transportation, agriculture and finance.

Bitcoin increases the expectation that the anonymity and digital backup of transactions will change many habits, without being tied to a single center, with the approval of the majority of those in the communication network. The fact that Bitcoin, which is thought to contribute to economic democratization in its current state, does not have any equity behind it, also carries a certain risk factor. Many countries do not want Bitcoin because it creates a substitution effect, weakens physical currency control, and therefore affects inflation, money printing and trade. On the other hand, Sweden, Denmark and Estonia aim to issue state cryptocurrencies. Thus, they think that it will be easier to control the virtual version of money indexed to existing physical money. The IMF is working on creating a cryptocurrency in which all reserve currencies are tied to a basket at a certain rate. In this context, it is increasingly necessary for Turkey to produce a state virtual currency linked to its own currency and under the control of the Central Bank. Thus, one can benefit from the conveniences it brings through a virtual currency that can be exchanged with other Bitcoin and its derivatives in the world.

At this stage, cryptocurrencies have become more widespread with the high arbitrage profits they provide in secondary markets. Those who invest in virtual money such as Bitcoin, especially after the 2008 crisis, think that they are eliminating risks such as exchange rate fluctuations caused by the central authority, but since virtual money is still new, it has to prove itself in terms of trust and representativeness in the monetary system.

Japan, which is thought to have approximately three hundred thousand merchants transacting with Bitcoin as of the first half of 2017, became the first state to recognize Bitcoin on April 7, 2017, by making the necessary adjustments in the "Banking Laws". In countries such as Australia, Finland and Denmark, official authorities view Bitcoin moderately. On the other hand, the People's Republic of China's announcement on September 15, 2017 that it would close down companies that act as intermediaries for cryptocurrencies led to a significant decline in the value of Bitcoin. The main reason for China's ban is that this system is used as a method of smuggling money out of the country and loses control of monetary management by supporting money laundering and illegal economic activities. Apart from this, China thinks that by banning Bitcoin, it is taking precautions against the meltdown of the three trillion dollars of US Bonds it holds through crypto-currencies.

"Real Estate Exchange Commission" and senators appointed by the parliament, transactions with Bitcoin are accepted. However, the FED emphasizes that the effects of the new currency on the financial system should be monitored, and thus, although it does not take as harsh a measure as China, it seems to support the spread of virtual currency. Russia, on the other hand, is doing its own work on and supporting Ethereum because the cryptocurrency threatens the US dollar as the international reserve currency.

The fact that institutions and businesses feel that they are freer with the feeling of freedom provided by the lack of rules also provides the impression that virtual money increases economic democratization. In addition, its high value and the ability to make money for its investors make virtual money popular. The further spread of currencies such as Bitcoin, which derives its popularity from the desire to make money, should now be brought within a certain legal framework. In the world of virtual money, the rules of the game must be determined. If this happens, virtual money may break the global hegemony of the US Dollar and the Euro, or at least seriously threaten their hegemony. The current trend shows that cryptocurrencies will become widespread, but it is still unclear how long sovereign states and Central Banks that have national currencies will allow these unregulated currencies.

The appeal of Bitcoin, which many businesses prefer to use as a means of payment, comes from the fact that there is no monetary authority controlling its amount and there is no cost. Electronic fund transfers, which are recorded in a way that allows inquiry in the current system, not only are open to auditing, but also impose commission and service fee costs on businesses. In order for money transfers to take place, the transfer must be registered in the financial system. Bitcoin, which is difficult to control, is attractive against such payment instruments because it has no additional costs.

It seems profitable as an investment tool. In the under-the-counter market, called the virtual currency exchange, buyers and sellers see Bitcoin, which increased from three thousand dollars to five thousand dollars in three months, as a profitable investment tool. Nowadays, digital currencies, which have financial mobility without being dependent on country governments, have advantages in terms of economic freedom in this respect, but they also have a trust problem for the same reason. The most important thing that those who currently use this currency as an investment tool should know is that its volatility is high. Whether or not to use it as an investment tool within the scope of this information depends on the investor's preferences.

Using Bitcoin as an investment tool is risky for now because it has no infrastructure and no auditability in the world yet. The fact that he does not adhere to certain rules undermines his credibility. The fact that the payment network takes place and gains value through an algorithmic model connected to a computer and is not tied to a location increases the risk factor. The most important agenda of the cryptocurrency world today is that each state takes additional measures for virtual money in its own country and tries to create a common rule all over the world.