Content area
Full Text
Abstract
Bitcoin is the first technology for the final transfer of digital goods online, facilitating instant global payments without intermediation. Bitcoin's operation is based on a distributed, decentralized, and transparent asset ledger that acts as an ongoing chain record of all transactions. The system issues coins to reward those who contribute processing power to the network's operation. The possibilities created by this innovation are significant for the world's poor, who could skip traditional political and financial institutions and move to digital currencies in the same way they have gone straight to using mobile phones and skipped landline telephones.
JEL Coder. F30, 031
Keywords: bitcoin, innovation, finance, development
I. Introduction
At the beginning of the twenty-first century, the telecommunication revolution has improved virtually all aspects of modern economic life. Email has vastly increased the ability to communicate information across the world, compared with paper mail and the telegram. Websites like Amazon and eBay have given consumers an infinitely wider array of products and producers while allowing producers to extend their reach to large numbers of consumers. Global Positioning Satellite systems have made driving and navigation safer and easier. Various fields of industry and agriculture have benefited from the innovations that better communication and efficient production-chain management have produced. Search engines have made information accessible worldwide in a manner heretofore unimaginable. Many more global transformative innovations exist, yet there remains one field where business continues as it has for decades: finance and banking.
As former chairman of the US Federal Reserve System Paul Volcker famously put it, the "single most important" innovation the financial industry has witnessed in the past twenty-five years is the automated teller machine (ATM),1 adding: "I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth" (Flosking and Jagger 2009). While banks have produced various new financial instruments and methods of hedging risk and maximizing their profitability, the banking experience for the consumer has not changed much since the ATM allowed withdrawals outside of bank branch locations and bank operating hours. Transferring money continues to cost significant amounts of money and time for the majority of people. The most common method for nonpersonal payment today is still the credit card, which was invented...