Hindrance in Bitcoin Based Derivatives

Bitcoin (digital currency) has grown in popularity over very short period of few years. It has become not only a reliable and preferred means of carrying out online transactions, but also an immense source of store of value. With its popularity rising, and acceptability as an alternate means of exchange increasing, bitcoins emerged in alternate banking and exchange stream dedicated to dealing in it. Many exchanges have sprung across the globe that take currency from users, that is, USD, GBP, SR, etc and credit the user’s account with bitcoins equivalent according to prevalent exchange rate.

The exchange of bitcoins as any other currency, and its operation as a mode of regular exchange, as evidenced by transactions for cars, home appliances, purchase of investment funds, etc, establishes its mantle as any other currency, which states on its note “Payable to bearer on demand”. In such a case, the development of bitcoin based tradable derivatives should only be a matter of time, but this is not the real case.

Governments have been reluctant in accepting this new change brought about in today’s information age. Part of the reluctance stems from certain past events where there were sudden changes in values of the bitcoin, for example, when a hacker cracked a loophole in the system and generated millions of bitcoins for himself. Where this event showed a case of reliability issues, it also showed swift and immediate action on part of the programmers who found this anomaly and fixed it within a few hours, quickly stabilizing the digital currency.

The important point to consider is that, the value of bitcoin fell manifold as a result of this event, however, the value recovered and surpassed previous barriers as well in a very short period of time. It showed that people in general around the world, still accepted this method and trusted its reliability.

Upon a deeper analysis, it can easily noted that the core reason for governments reluctance lies in inability of manage or regulate the currency at any partial level. That is the reason why many countries have chosen to ban the bitcoins within their territories, the biggest in them being China. Owing to such developments, the companies like, Apple have found themselves in a big fix. Apple’s policy is that it does not allow Apple IOS users to install and run applications or services that are banned in any country. Therefore, in line with banning of bitcoin in some countries, Apple discontinued or blocked Apple platform based bitcoin exchange software. This step earned ire from Apple’s users. It shows that those who oppose this change, stand to lose a great deal of their established business to other contenders.

This yet again proves, that masses want to stick to this method of transacting with one another, and that governments should rather support this change towards a greater evolution. Hence, the next step for this crypto-currency would be creation of derivative based on it at a broader playing field, ably controlled and regulated by governments.