Kenneth R. Szulczyk
bank account. Seller’s bank sends information about the check to the clearinghouse and the
clearinghouse checks with your bank. Your bank checks your balance ensuring you have enough
funds in the account to pay the check. Once your bank approves the transaction, the
clearinghouse reduces the account for your bank by $500 and adds $500 to the account for the
seller’s bank. Then your bank reduces your account by $500 while the seller’s bank adds $
to his or her account, thus clearing the transaction.
Bitcoins have four drawbacks that would prevent wide scale adoption.
- People who deposit their savings into banks have deposit insurance. If their bank fails, the
deposit insurance guarantees the depositors will not lose their money. The Federal Deposit
Insurance Corporation insures bank deposits up to $250,000 for U.S. banks. However, no
government agency insures Bitcoin or protects people from losses. - Hackers can break into online wallets and steal the Bitcoins. Since all transactions are
electronic, they can erase history, and people may not recover their stolen Bitcoins. - Price of Bitcoin fluctuates greatly between $80 and $1,00 0 , which we show in Figure 4. For
people to use and accept money, people must know the money’s value. Some investors
purchased Bitcoins, hoping to buy at a low price and sell for a high price. - Few sellers accept Bitcoins as payment.
Source: http://bitcoincharts.com/charts/Figure 4. The Bitcoin’s value
Bitcoins provide three benefits. First, buyers and sellers do not have to reveal their identities
to each other. They can remain secret. Second, people can use Bitcoin to launder or smuggle
currency outside a country. A buyer would purchase Bitcoins in one country and withdraw the
Bicoins in another country, circumventing currency controls. Finally, buyers and sellers use