The standardization of the exchanges where the coins are traded will be the next stage of the Bitcoin revolution. Today’s stage of Bitcoin’s evolution is similar to that of a Wild West prospector. The consensus across the globe is that Bitcoins serve as a form of value storage in a similar manner to how gold and silver have done throughout history. Bitcoin has a value that is determined by the other party, just like gold and silver. Since trading first started, this has resulted in fraud. As both the miners and the assayers sought to increase their profits, filled ore and crooked scales became the norm. Governmental oversight and the development of centralized exchanges were the results.
The goal of Bitcoin has always been to run its own local police force and avoid being physically inspected by any external authority. The idealistic vision was destroyed a month ago when Mt. The theft of about $300 million worth of Bitcoin caused Gox, by far the biggest Bitcoin exchange, to close. Clients who had Bitcoin on deposit at Mt. Gox is still unsure of their refund amount. The cyber security debate is exposed by the Mt. Gox problems. Unexpectedly, the currency known as Bitcoin has proven to be remarkably resilient. This toughness may very well provide the currency with the boost it needs to gain legitimacy, and the tendency toward government intervention may actually help this new store of value reach its full potential.
The Mt. Gox incident may have come at a good time for the currency. A bilateral agreement to start trading Bitcoins through a swap-execution facility, also known as a centralized exchange, had already been proposed to the Commodity Trading Futures Commission (CFTC) by Tera Group, based in Summit, New Jersey. Swap agreements are used in the vast majority of commercial currency transactions; for this reason, we model our trading after that of commercial traders. A swap agreement is essentially an insurance policy that offers a guaranteed value at a specific time to guard against currency fluctuations. The foundation of the commodity exchanges is this. The financial industry’s major thoroughfares are the swap markets. They handle voluminous amounts while taking a small toll from each transaction. Because of this, each individual swap has a low cost, but the sheer number of swaps processed results in a significant revenue stream for all of the major banks.
On Tera Group’s proposal, the CFTC has not yet provided any feedback. In November, we made the observation that Bitcoin was no longer just a novelty and that the revenue stream had grown to an unmanageable size for major banks worldwide. The tenacity of Bitcoin in the face of the Mt. The Gox scandal is proof of the effectiveness of a world-wide grassroots movement. As owners of Bitcoin tried to exchange them for hard currency, the value of Bitcoin should have plummeted around the world. The market’s response turned out to be very well-organized. Although prices did decline generally, the market appeared to recognize that Mt. Customers’ capacity to withdraw funds from Gox. Because of this, the price of bitcoin has remained steady at $585. This is very close to the average price for the previous six months despite being far below the December high of $1,200.
The last coincidentally timed aspect of Bitcoin’s structural transformation from anarchist, alternative store of value existing outside the institutionalized financial industry to being incorporated into that same financial system is its ability to be taxed by the traditional governments it was designed to avoid. The Internal Revenue Service has at last had enough and wants its share. Bitcoin is now governed by property laws rather than currency laws, as the IRS has declared it to be property rather than currency. This enables the IRS to receive its fair share while validating the requirement for a central exchange to determine value. It also ends disputes with the United States. Over legal tender concerns, Treasury and Congress. It is simply regarded as a good for bartering—exchanging for other goods and services.
A global marketplace, Bitcoin conducts business via an electronic network. That has a striking resemblance to the forex markets. The banking sector and industry regulators will quickly discover that Mount. Gox has done more to strengthen the will of individual Bitcoin users around the world than to put an end to this startup. Similar to how farmers were duped in the grain trade of ancient Egypt or by assayers and stockyards when gold and cattle were traded in the Wild West, private Bitcoin users will clamor for the government to protect its citizens from shady exchanges. Given that Bitcoin may have demonstrated its ability to support itself on a retail level, Tera Group may be in the right place at the right time with the right idea. As the financial sector attempts to monetize it, institutional and legal frameworks are being established to support its continued evolution.