What is Bitcoin?
Bitcoin, is the world’s first decentralized digital person-to-person cryptocurrency and is considered to be a revolution In present currency/financial markets.Bitcoin was started in 2009 by a mysterious programmer under the pseudonym “Satoshi Nakomoto”.This digital currency is gaining huge popularity worldwide and mass adoption. As the popularity of Bitcoin and other cryptocurrencies are increasing, so is the eagerness of people to know more about it. Bitcoin has various advantages as well as disadvantages. We shall discuss the same in this article, in which I have listed out some of the benefits of Bitcoins.
Initially, Bitcoin faced a lot of criticism from each part of the world and was considered to be a scam due to its several negative factors. Mainly, many scam companies like Bitcoin Trader were promising huge returns for rookie investors, and as Cripto-Valuta reported, they used fake photos of celebrities in their promos. Such practices, combined with using Bitcoin in the brand name certainly were one of the negative factors.” But over time when experts from various sectors started understanding Bitcoins and the underlying technology behind it, i.e Blockchain, they understood the power of digital currencies and started to look it in a positive way. Although Bitcoin has many advantages as compared to the present system of Paper Money, it also carries various disadvantages as well.
List of advantages and disadvantages of Bitcoins
Following is a list of advantages and disadvantages of bitcoins.
Benefits of Bitcoin | Advantages of Bitcoins
Anonymous and Private
Bitcoin transactions are completely anonymous and private. Unlike in payments through the bank, where the transactions can be tracked and identified, bitcoin transactions cannot be identified. A person can only know the addresses of the bitcoin wallet on which the payment has been sent and received. But to whom these addresses belong, cannot be identified. It’s like payment to a particular bank account can be tracked but to whom these accounts belong cannot be known. ( but if a person uses same bitcoin address for every transaction for a long period of time, there is a possibility that the person can be tracked)
Paying through bitcoins provides the utmost freedom. Bitcoin can be transferred to any person in any part of the world. No intermediaries in between. No bank holidays/strikes. No boundaries or borders. No payment limit.
Paying through Bitcoin has very low and sometimes no transaction fees at all. It all depends on the priority of the person. If a person wishes that his/her transaction gets processed fast, he has to pay a transaction fees which is still very low as compared to any financial intermediary or digital wallets.
Fewer risks for merchants
Bitcoin transactions are secure, irreversible, and do not contain any customers’sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks.
Bitcoin transactions are very fast if compared to banking channels. A bitcoin transaction is as fast an e-mail and can be processed within 10 minutes. Also, it can be instantly processed if they are “zero-confirmation” transactions, meaning that the merchant takes on the risk of accepting a transaction that hasn’t yet been confirmed by the bitcoin blockchain.
he confirmed transactions are those which takes at least 10 minutes to process. Credit Card or digital wallet services also provides instant approved transaction services but for this, they usually charge hefty fees, which is not in the case of Bitcoin as mentioned above. Bitcoin has very low transaction fees even for being super fast in terms of processing.
Central governments can’t take it away
“I promise to pay the bearer a sum of one thousand rupees” but do we get the gold if we go to reserve bank. The answer is “NO”. Similarly, the government says that a paper note can have a value up to Rs 1000 but what if the other government when in power demonetizes it and says that it is a waste and does not hold any value? The result being, the consumers losing their financial worth and credibility.
This is not in the case of Bitcoins. The government cannot take back your Bitcoins as it is decentralized and no one has control over it. The maximum is that the government can ban it but still your bitcoins have some value in those market/places/regions where it is still legal and thus can be cashed
People can’t steal your payment information from merchants
Perhaps this is the biggest benefit of Bitcoin. Most online purchases today are made via credit cards, debit cards, requiring you to enter all your secret information (the credit card number, expiry date, and CSV number) into a web form. This is why credit card numbers are regularly being stolen.
Bitcoin transactions, however, don’t require you to give up any secret information. Instead, they use two keys: a public key, and a private key. The public key, as the name suggests is public and anyone can see it (which is actually your bitcoin address), but your private key is secret. When you send a bitcoin, you ‘sign’ the transaction by combining your public and private keys together, and applying a mathematical function to them. This creates a certificate that proves the transaction came from you.
Read More About Public Keys And Private Keys
Perhaps, this is the reason why Bitcoin is called the Future of Money. Generally, the central government can get fiat currencies printed as much as they want. When the economy is slowing down it is not able to pay off it’s the national debt, the government orders to print more currency and inject it into the economy. This causes the value of a currency to decrease as more people have more currency. Also printing more notes creates inflation and increases the prices of the commodity. It is because now more people are willing to pay for a particular commodity and the seller has to increase the price in order to make the sale. Thus, the person who had gained when the government injected more currency can now buy more but those people who were not benefitted from have limited currency and now the prices of a commodity have also increased.
On the other hand, this is not the case in Bitcoins. Only 21 million Bitcoins will ever be created and this is known to everyone. This means that after all the Bitcoins have matured, the number of bitcoins cannot grow and thus inflation won’t be a problem. At the time of publishing this article, almost 1.7 Million Bitcoins have been generated and the remaining will be generated over a period of time. New. Bitcoins are generated through a process called “Mining”.
You can create your own money
As the central government can print its own money, similarly any person can also produce bitcoins by yourself. This can be done by mining bitcoins through computers. It is not any kind of physical mining. Bitcoin mining is simply a case of leaving the computer switched on, and keep the bitcoin mining software running. Read more about Bitcoin Mining.
Well, the above was just the benefits of Bitcoin. But it also has some disadvantages as well which are mentioned below.
Disadvantages of Bitcoins
Degree of acceptance
Many people are still unaware of Bitcoin. Every day, more business organizations are accepting bitcoins but the list remains small and still needs to grow in order to benefit from network effects.
Bitcoin prices are very volatile and increases/decrease at a very high pace. Speculators wish to take advantage of it but genuine investors think of it as too risky and therefore all the investors do not invest in Bitcoins.
Bitcoin software is with many incomplete features in active development. New tools, features, and services are being developed to make Bitcoin more secure, convenient and accessible to the masses. Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance.
Possible Government Interference
Well, the government may not take your Bitcoins away but can ban it in the country, which forces bitcoin wallets and companies to shut down. The bitcoins in these wallets are freezed and access to them becomes difficult.
We discussed that how Bitcoin being non-inflationary can be an advantage to the economy. But one possible negative factor attached to Bitcoin because of being deflationary is that if it gets in the hands of a speculator a huge recession will come in Bitcoins.
Bitcoins are limited in number and if the major chunk is held by speculators and investors, they will hold it for a longer period of time and won’t release it in the market. When the supply of bitcoin will be short and demand continues to increase, it will increase the price of Bitcoins and then the speculating investors may get benefited.
Lack of recourse
If you lose your bitcoin wallet, you have lost all of your bitcoins in that wallet. You cannot regain it and they are simply lost forever until and unless you have backed up the wallet with a backup phrase code. This backup phrase code can be used to recover the lost bitcoin wallet balance.
In case a credit card/debit card stolen, we can call the merchant to cancel the card and request a new one but in case of Bitcoins, as it is decentralized and no one has control over it, we don’t have any person/organization to call.
Money Laundering/Black Market
Initially, bitcoins were used for money laundering and people operating in black markets, which did not want to reveal their personal information and get payment secured. In money laundering, middleman/intermediaries would collect money from one source and transfer it to another source through Bitcoins.
Overall Bitcoins may have many advantages and disadvantages but it is up to the people and society in which ways do they use it.
UK/US has been using Bitcoins as smoothly as Fiat Currencies. On April 1, 2017, Japan also recognized Bitcoin as an official mode of payment and implemented tax policies on it as well (click here to read the full article in detail)
I hope you have learned some of the benefits of Bitcoins as well as some of the disadvantages of bitcoins through this article. Leave your thoughts in the comments section below.
Rohit Kukreja Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.