The Role of Bitcoin in the Monetary System: Its Development and the Possible Future

Abstract

Bitcoin has received increasing attention since its introduction and has a market capitalization of over US$100 billion now. Bitcoin is not simply a digital currency, which mainly improves the ease of transportation by turning it from tangible to intangible money. Instead, Bitcoin comes with a breakthrough in removing record-keeping by central authorities. It provides a strong mechanism to support a credibly committed rule-based monetary system, which can avoid double-spending. The presence of such mechanism, in turn, makes a resurgence of private provision of money more feasible. In this regard, Bitcoin can reshape the world economy through a substantial revamp in the monetary system. The purpose of this chapter is to shed light on the current development of Bitcoin as a medium of exchange and its possible future role in the monetary system.