An Analysis of Bitcoin

In spite of the fact that a lot of virtual currencies have been created in recent years, bitcoin is the best known from all of them and regularly reported in the news. Currency without identified creator is appreciated by its user for non-centralized running, without any chance of governments to influence the money supply. The advantages of bitcoin, such as very quick payments worldwide, stop of inflations caused by governments trying to solve their own problems or high level of transactions privacy are widely mentioned. The aim of the article is not to describe the technical issue of bitcoin and explain how this system works, because it has been widely explained in other articles. The aim is focusing on economic aspects of bitcoin, the technical aspects are mentioned only if necessary. For accomplishing the aim the article is split in three parts. The first part is dedicated to answering the question “What is bitcoin?”. It examines whether bitcoin complies with theoretical, empirical and law definition of money. The law definition of money compliance is done for Czech, German and EU law in general, but attitudes of US and Chinese governments are also mentioned. According to the findings, bitcoin cannot be easily considered as money. The second part is focused on monetary aspects of bitcoin. It analyses the question, “What would mean for an economy to accept bitcoin as legal tender?”. In the case of single economy the money supply would be completely out of control of government and due to easy way of bitcoin transferring, money supply could be increased and decreased quickly. In the case of global economy, deflation and its impacts would be inevitable. The third part concentrates on bitcoin banking. No possibility of bitcoin lending does not mean the end of banking industry, but would probably lead to a significant change in how it works.