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Bitcoin becomes preferred currency

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By Shim Jae-yun

"I Earned 300 Million Won ($270,000) in Three Months With Crypto Currency" is the title of a recently published book written by financial expert Bin Hyun-woo about Bitcoin. The book has stirred public interest in the new digital currency, which has been surrounded by controversy because of its valuation and future role in the global financial market.

Despite the recent swing, the value of a Bitcoin has been increasing phenomenally over the past several months. Its value, which lingered at only 10 won in early 2009, reached 7,500,000 won ($6,590) as of Tuesday. Bitcoin issuance in the next 120 years is limited to 21 million units, making it highly valuable. The brilliant growth of the crypto currency has been possible thanks to the new blockchain technology.

Blockchain has come under the spotlight during this year's Davos Forum in Switzerland as one of the key technologies that will lead the Fourth Industrial Revolution. Based on cryptology and distribution, the technology enables safe data transmission and does not need a guarantee from a third person, thus eliminating the middleman from any and all transactions. In addition, with real-time sharing of transaction data, it reduces the possibilities of hacking to almost nothing.

Following the global financial crisis, there has been skepticism over the safety of currencies guaranteed by the banks. The United States, Japan and Europe implemented quantitative easing but failed to contain the confusion in the money markets. Against this backdrop, Bitcoin emerged as an alternative currency, invented in 2009 by a Japanese man ― or group of people ― known by the pseudonym Saroshi Nakamoto.

Digital currency trading has been increasing rapidly. In Korea, the largest trading firm, Bithumb, has seen 2.5 trillion won in daily trading of the crypto currency, surpassing that of the daily trading of the main stock market at 2.2 trillion won.

Goldman Sachs began efforts to lead the new digital currency market by indicating the necessity of an exchange. The Chicago Merchandise Exchange announced a plan to establish a futures exchange within the year. During a financial conference held in London on Sept. 29, International Monetary Fund President Christine Lagarde said Bitcoin will replace the role of existing currencies and will soon be preferred by people from all walks of life.

But critics warn against the possible collapse of the crypto currency. Jamie Dimon, chairman of JP Morgan Chase, said Bitcoin is a fraud and will evaporate soon. Amid the boom of speculative investment into crypto currencies, many people in Korea have become vulnerable to fraud. Lagarde also pointed out that the crypto currency is still dangerous and its basic technology has problems.

But she noted such technical problems can improve over time. Microsoft's Bill Gates also supports Bitcoin: "Bitcoin is not stoppable." With this belief, Microsoft introduced the Coco Framework as a blockchain-based platform.

The rise of the crypto currency will likely have a significant impact on the entire society. A cashless society is already taking shape. As coins and bank notes rapidly disappear in transactions, central banks will have to take measures to cope with the change.

The central bank will likely suffer decreasing profits as financial transactions depend less on its currency issuance. It will also see a major change in its role in adjusting interest rates. As Bitcoin becomes widely adopted, the government needs to come up with new policies, including the legalization of the new digital currency. The country needs to lead the new global financial order by making the best of the crypto currency. However, regulation-oriented policies will not help achieve this goal.

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