The rising demand for an alternative to fiat currency will result in a wave of private currencies according to the Institute of Economic Affairs (IEA).
Kevin Dowd, a professor of finance and economics at Durham University, said that as Bitcoin cannot be shut down it should be accepted by governments as an alternative payment method.
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Dowd argues that states must allow a level playing field as far for private money to create competition between state-backed and private currencies.
While private currencies have sprung up across history they have invariably been shut down by the local government. Bitcoin’s longevity though integration into the World Wide Web should cause governments to accept it is here to stay.
Dowd used an analogy of previous monopolies in an interview with the Guardian to explain how competition in currency is a good thing: "The natural analogy is with some of the old, bad, monopolies like British Gas or British Telecom. Telecom is a very good example: for a long time, we had a government monopoly, which stifled innovation, and the service was poor.
"Once that got opened up, competition opened, new innovation prospered, and we got all sorts of innovation that we couldn’t possibly anticipate, and we’re a lot better off for it."
Bitcoin success will not last forever though, according to Dowd. Due to design flaws Dowd believes that another, better made cryptocurrency is more likely to become mainstream.
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By GlobalDataThe currency Ripple, often dubbed Bitcoin 2.0, was hotly tipped to become the successor to Bitcoin but took a hit when co-founder Jed McCaleb announced his intention to sell his sizable stake in the company’s native digital currency.
Dowd identifies four Reasons for Bitcoin’s success:
- Bitcoin has enjoyed widespread acceptance because of the low transaction costs associated with using it. For retailers, the cost of using Bitcoin is lower compared to that of a credit card;
- The Bitcoin market is self-regulating, making it free from threats of government coercion. Its nature also means that the market avoids sweeping regulation similar to that imposed by central banks;
- Bitcoin restores a level of anonymity to financial transactions. In an age where financial freedom is being increasingly eroded by governments, this has resulted in Bitcoin and other forms of private money becoming an attractive alternative, and
- Bitcoin represents a departure from the status quo. The novelty of the currency is in its ability to facilitate certain activities prohibited by the state. As long as governments continue to restrict and constrain commerce, demand for private monies will grow.
Media attention on the decentralised currency has died down in recent months and its price is far off its December 2013 high of $1,200, currently hovering around $600.
Despite this online retailers continue to add it to their payment options. In May the US TV company Dish allowed its customers to pay for services with Bitcoin.
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