In certain political corners, the Great Recession is seen, rightly or wrongly, to have tarnished the reputation of the U.S. Federal Reserve system. Some libertarians have argued against the purpose, and even existence, of the central bank, which they think helped cause the 2008 crisis. Furthermore, their anger is compounded by then-Fed Chair Ben Bernanke’s bailout of financial institutions with distressed assets — even though he was acting to rescue the U.S. economy.
Against that backdrop, it is no surprise that digital currencies such as bitcoin have gained traction. Bitcoin seems to offer an innovative option to citizens disenchanted with the existing monetary system. The relatively new digital currency offers not only decentralization but also a limited money supply – all efficiency. It also implies that, perhaps, a government is not needed for the currency system. Yet, underneath the claims of cryptocurrency advocates lie numerous problems and obstacles in bitcoin that would prevent it from becoming a truly efficient, independent, and widely accepted currency. First, the bitcoin system as a whole is inherently loaded with technological issues. Second, it faces transactional problems. Finally, bitcoin poses regulatory problems with respect to account insurance, illegal usage, and taxation.
