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Econ Paper.docx - 1 Haoyue(Jimmy Wang Professor Gholum Econ...

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1 Haoyue (Jimmy) Wang Professor Gholum Econ 2 28 Nov 2017 Bitcoin: How It can Change Existing Payment System Bitcoin is like the misunderstood and a little more secretive cousin of Paypal. Both are peer to peer payment system, the difference and the most misunderstood aspect of Bitcoin lies within its decentralized nature and fact that Bitcoin is not backed by any government thus acting as a de facto private currency. This distinct characteristic of Bitcoin makes it hard for governments to regulate and creates an alternative payment system that lives outside conventional monetary policies. Not surprisingly, in countries such as Venezuela where a combination of disastrous monetary policy and unstable political system resulting in an whopping 2300% (IMF, Oct.2017) inflation rate, bitcoin mining has been steadily increasing. In The Secret, Dangerous World of Venezuelan Bitcoin Mining , Jim Epstein provides a great insight into the booming and heavily feared (by the government) Bitcoin mining business in Venezuela. The author first shows how Bitcoin mining in Venezuela first existed as a mean for people to make enough money to survive in Venezuela. The ridiculous inflation rate made Venezuela currency, bolivar , worthless. But because of the country's socialist government, the use of electricity in Venezuela is free of charge, providing great incentive for Bitcoin miners. Bitcoin mining in essence is using computer’s computational power to solve puzzles and gaining “coins” in that process, one of the major cost factor of mining is the price of electricity. In a
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