Shifting Global Transactions: The Bitcoin Effect

In simpler terms, it’s like how the internet changed the way we communicate and share information. Bitcoin is doing something similar with money, making it faster, cheaper, and more accessible to everyone, no matter where they are in the world. This has had a big impact on the traditional financial systems and is changing the way people think about money and how it works, specially in 2024.

Primary Bitcoin Effects:

• Borderless Transactions: Bitcoin enables direct, peer-to-peer transactions without the need for intermediaries like banks or payment processors, transcending geographic boundaries and facilitating cross-border payments and value transfers.
• Decentralization: Bitcoin operates on a decentralized network, eliminating the need for a central authority or control. This decentralized nature promotes transparency, resilience, and reduced reliance on traditional financial institutions.
• Financial Inclusion: By providing an alternative to traditional banking infrastructure, Bitcoin has the potential to promote financial inclusion for unbanked and underbanked populations, allowing them to participate in the global economy.
• Immutability and Transparency: Transactions on the Bitcoin blockchain are recorded in an immutable and publicly accessible ledger, providing transparency and accountability in financial transactions.

How Bitcoin Transactions Work

As explained by immediateadvantage.org, is a decentralized digital currency that operates on a peer-to-peer network called the blockchain. Transactions on the Bitcoin network involve the transfer of bitcoins from one user’s wallet to another user’s wallet, and they are recorded on the blockchain.

• Wallet: Each user has a digital wallet that contains their Bitcoin balance and a private key. The private key is a secret code that allows the user to access and spend their bitcoins.
• Transaction: When a user wants to send bitcoins to another user, they create a transaction request using their wallet software. The transaction request includes the recipient’s wallet address and the amount of bitcoins to be sent.
• Transaction Broadcast: The transaction request is then broadcast to the Bitcoin network, which is made up of nodes (computers running the Bitcoin software). These nodes relay the transaction to other nodes, ensuring that the transaction is propagated throughout the network.
• Transaction Verification: Miners, which are specialized nodes that perform complex computations, receive the transaction and begin to verify it. They check if the sender has enough bitcoins in their wallet to complete the transaction and if the transaction follows the rules of the Bitcoin protocol.

Recent Major Events:

• CME Group Launches Bitcoin Futures (December 2017) – The Chicago Mercantile Exchange (CME) launches Bitcoin futures contracts.
• Bakkt Launches Bitcoin Futures and Options (September 2019) – Bakkt, a subsidiary of Intercontinental Exchange (ICE), launches physically-settled Bitcoin futures contracts.
• Grayscale Bitcoin Trust (GBTC) Becomes SEC Reporting Company (January 2020) – Grayscale Investments’ Bitcoin Trust (GBTC) becomes an SEC reporting company, increasing transparency and credibility.
• OCC Allows U.S. Banks to Provide Crypto Custody Services (July 2020) – The U.S. Office of the Comptroller of the Currency (OCC) allows federally chartered banks to provide cryptocurrency custody services.
• PayPal Enables Bitcoin Transactions (October 2020) – PayPal allows its users to buy, sell, and hold Bitcoin and other cryptocurrencies on its platform.
• Square (now Block) Buys $50 Million in Bitcoin (October 2020) – Square, a financial services company, purchases $50 million worth of Bitcoin.
• MicroStrategy Purchases $250 Million in Bitcoin (August 2020) – MicroStrategy, a business intelligence software company, buys $250 million worth of Bitcoin as part of its capital allocation strategy.
• Fidelity Launches Bitcoin Fund for Wealthy Investors (August 2020) – Fidelity Investments launches a Bitcoin fund for wealthy investors, signaling growing institutional interest in cryptocurrency.
• Coinbase Acquires Xapo’s Institutional Custody Business (August 2019) – Coinbase acquires Xapo’s institutional custody business, becoming one of the world’s largest crypto custodians.
• Elon Musk Announces Tesla’s $1.5 Billion Bitcoin Purchase (February 2021) – Elon Musk, CEO of Tesla, announces that the company has bought $1.5 billion worth of Bitcoin.
• Tesla Invests $1.5 Billion in Bitcoin (February 2021) – Tesla reveals that it has invested $1.5 billion in Bitcoin and will start accepting it as payment for its products.
• Marathon Digital Holdings Purchases $150 Million in Bitcoin (January 2021) – Marathon Digital Holdings, a Bitcoin mining company, purchases $150 million worth of Bitcoin.
• Nasdaq-Listed Company MicroStrategy Buys $425 Million in Bitcoin (December 2020) – MicroStrategy makes an additional $425 million Bitcoin purchase, bringing its total holdings to over 70,000 BTC.
• Coinbase Goes Public on Nasdaq (April 2021) – Coinbase, one of the largest cryptocurrency exchanges, goes public on the Nasdaq stock exchange.
• PayPal Launches Crypto Checkout Service (March 2021) – PayPal introduces a new service allowing users to pay with Bitcoin and other cryptocurrencies at millions of online merchants.
• ProShares Bitcoin Futures ETF Approval (October 2021) – The U.S. SEC approves the first Bitcoin futures exchange-traded fund (ETF) proposed by ProShares.
• El Salvador Adopts Bitcoin as Legal Tender (June 2021) – El Salvador becomes the first country to officially recognize Bitcoin as legal tender.
• Taproot Activation Locked In (June 2021) – The Taproot upgrade achieves the necessary 90% miner consensus to lock in its activation for November 2021.
• Taproot Upgrade Activation (November 2021) – The Taproot upgrade is activated on the Bitcoin network, improving privacy, scalability, and smart contract functionality.
• El Salvador Buys 200 Bitcoins, Plans to Buy More (September 2021) – El Salvador’s President Nayib Bukele announces that the country has bought 200 Bitcoins and plans to acquire more.
• Bukele Announces Bitcoin City in El Salvador (November 2021) – El Salvador’s President Nayib Bukele announces plans to build a “Bitcoin City” powered by geothermal energy from a volcano.
• Bitcoin Becomes Official Currency in Central African Republic (April 2022) – The Central African Republic becomes the second country after El Salvador to adopt Bitcoin as legal tender.
• Bitcoin Becomes the Official Currency of Prospera, Honduras (April 2022) – The special economic zone of Prospera in Honduras announces that it will adopt Bitcoin as legal tender.
• Bitcoin Becomes Legal Tender in Madeira, Portugal (April 2022) – The autonomous region of Madeira in Portugal announces that it will adopt Bitcoin as legal tender.
• Bitcoin Donations Surge During Ukrainian Resistance (February 2022) – Bitcoin donations surge to support the Ukrainian resistance against the Russian invasion.
• Bitcoin Hashrate Drops After China’s Crackdown (June 2021) – Bitcoin’s hashrate drops significantly following China’s crackdown on cryptocurrency mining.
• Bitcoin Becomes Legal Tender in Lugano, Switzerland (March 2022) – The city of Lugano in Switzerland announces that it will accept Bitcoin, Tether, and its own LVGA token as legal tender.
• U.S. Securities and Exchange Commission (SEC) (January 10, 2024) approved 11 spot Bitcoin exchange-traded funds (ETFs).
• Bitcoin Hits All-Time High – $73,780.07 (March 2024) – Bitcoin reaches its all-time high.
• Bitcoin Halving Event (April 2024) – The fourth Bitcoin halving event occurs, reducing the block reward.
• The Hong Kong Bitcoin and Ether ETFs officially approved (April 2024).
• Asia’s first spot bitcoin, ether ETFs start trading in Hong Kong, Debuts on (April 30 2024).

Advantages and Disadvantages of Bitcoin in Global Transactions

Advantages:

• Borderless Transactions: Bitcoin facilitates cross-border transactions without the need for intermediaries or currency exchanges, making international payments faster and cheaper.
• Lower Fees: Bitcoin transactions typically have lower fees compared to traditional international money transfers, which can save significant costs for businesses and individuals.
• Accessibility: Bitcoin provides financial services to individuals and businesses in regions with limited access to traditional banking infrastructure, promoting financial inclusion.
• Transparency: The Bitcoin blockchain is a publicly distributed ledger, ensuring transparency and traceability of transactions.
• Decentralization: Bitcoin operates on a decentralized network, eliminating the risk of single points of failure or control by centralized authorities.

Disadvantages:

• Volatility: The value of Bitcoin can be highly volatile, making it a risky investment and complicating its use as a medium of exchange for global transactions.
• Regulatory Uncertainty: Different countries have varying regulations and legal frameworks surrounding Bitcoin, leading to uncertainty and potential challenges for global adoption.
• Security Risks: Bitcoin wallets and exchanges have been targeted by hackers, and users risk losing their funds if proper security measures are not taken.
• Limited Adoption: Despite growing popularity, Bitcoin has not yet achieved widespread adoption, limiting its utility for global transactions in some regions.
• Scalability Issues: The Bitcoin network has faced scalability challenges, leading to slower transaction times and higher fees during periods of high demand.
• Anonymity Concerns: The anonymity of Bitcoin transactions has raised concerns about its potential use for illegal activities, such as money laundering or tax evasion.

Regulatory Considerations:

The regulatory landscape surrounding Bitcoin and other cryptocurrencies has been evolving rapidly as governments and financial authorities around the world grapple with the implications of this disruptive technology

• Varying Approaches: Different countries have taken varying approaches to regulating Bitcoin and cryptocurrencies. Some countries, like El Salvador, have embraced Bitcoin and made it legal tender, while others, like China, have imposed strict bans on cryptocurrency transactions.
• Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Regulations: Many countries have implemented AML and CTF regulations to address concerns about the anonymity of cryptocurrency transactions and their potential use for illicit activities. These regulations often require cryptocurrency exchanges and service providers to comply with Know Your Customer (KYC) and reporting requirements.
• Securities Regulations: In some jurisdictions, certain cryptocurrency offerings or tokens have been classified as securities, subjecting them to securities laws and regulations. This has implications for initial coin offerings (ICOs) and other forms of cryptocurrency fundraising.
• Central Bank Digital Currencies (CBDCs): Many central banks are exploring the development of their own digital currencies, known as CBDCs, as a response to the rise of cryptocurrencies. The introduction of CBDCs could have significant implications for the role of cryptocurrencies like Bitcoin in global transactions.

Traditional Barriers in Global Transactions

One of the most profound effects of Bitcoin on global transactions is its ability to break down traditional barriers that have long hindered seamless cross-border financial activities. The advent of this decentralized digital currency has challenged the status quo, offering a more efficient, transparent, and accessible means of conducting international transactions.

• Financial Barriers: These include high transaction fees, capital controls, limited access to financial services, and currency exchange fluctuations, which can increase the cost and complexity of global transactions.
• Logistical Barriers: Geographical boundaries, physical distances, time zones, and logistical challenges can make it difficult to transport goods, services, and information across borders.
• Regulatory Barriers: Complex legal frameworks, differing regulatory requirements, compliance burdens, and bureaucratic red tape can create uncertainty and obstacles for businesses operating globally.
• Informational Barriers: Language barriers, cultural differences, lack of transparency, and information asymmetry can lead to misunderstandings, miscommunication, and mistrust, making it challenging to conduct global transactions.

Future Trends and Challenges in Bitcoin’s Impact on Global Transactions

As Bitcoin continues to disrupt traditional financial systems and reshape the landscape of global transactions, it is essential to explore the potential future trends and challenges that lie ahead. While the technology holds immense promise, its widespread adoption and long-term viability will depend on how these trends and challenges are addressed.

Scalability and Transaction Speed:

• Addressing the inherent limitations of blockchain technology in processing transactions efficiently.
• Exploring solutions like the Lightning Network and alternative consensus mechanisms.

Regulatory Clarity and Adoption:

• Overcoming regulatory uncertainty and achieving harmonized frameworks across jurisdictions.
• Fostering innovation while mitigating risks associated with cryptocurrency transactions.

Integration with Traditional Finance:

• Enabling seamless interoperability between traditional finance and digital assets like Bitcoin.
• Developing custodial services, crypto-backed loans, and tokenized financial instruments.

Energy Consumption and Sustainability:

• Addressing the energy-intensive nature of Bitcoin mining and its environmental impact.
• Adopting more energy-efficient consensus mechanisms and increasing use of renewable energy sources.

Competition from Central Bank Digital Currencies (CBDCs):

• Navigating the potential competitive threat posed by centralized digital currencies issued by central banks.
• Leveraging Bitcoin’s decentralization and censorship-resistance as a unique value proposition.

Scalability and Efficiency Improvements:

• Continuously improving the scalability and efficiency of the Bitcoin network to handle increasing transaction volumes.
• Implementing technological advancements like the Lightning Network and other layer-2 solutions.

Conclusion

In conclusion, this exploration of Bitcoin’s influence on global transactions underscores the intricate dynamics at play, spanning from its decentralized foundations to its broader societal implications. The ongoing evolution of global transactions with Bitcoin suggests a deepening impact as it challenges established norms, providing a glimpse into a future where financial interactions unfold in a more inclusive, transparent, and accessible manner. The journey of Bitcoin in reshaping global transactions is an unfolding narrative, navigating the complexities of decentralized finance. Positioned to leave a lasting imprint on the global financial landscape, Bitcoin’s role is poised to expand, ushering in a transformative era for transactions worldwide.