Satoshi Nakamoto, the creator of Bitcoin (BTCUSD), envisioned it as a medium for daily transactions. The idea behind a decentralized cryptocurrency was to eliminate centralized control of money from government agencies while also ensuring quick transaction processing.
More than a decade later, observers are debating whether cryptocurrency has fulfilled its promise. Bitcoin is used as a medium of exchange in very few daily transactions.
However, the concept of an alternative currency that exists outside of the purview of governments and federal agencies is compelling. Recent Bitcoin technology advancements have the potential to restore Bitcoin to its original promise. As Bitcoin’s technology and name recognition have advanced, so have the number of locations that accept it. Bitcoin can be used to purchase a surprising number of items.
Bitcoin is intended to provide users with a distinct set of advantages over other payment methods. We’ll look at them in more detail below, but first, it’s worth understanding what Bitcoin, the cryptocurrency, is. Understanding the design principles of Bitcoin will make it easier to see the benefits of using Bitcoin for payments.
What Exactly Is Bitcoin?
Bitcoin is a peer-to-peer cryptocurrency system that processes transactions using digital units of exchange known as bitcoin. It was created in 2009, and the Bitcoin network has come to dominate and even define the cryptocurrency space. It spins a legion of altcoin followers and represents an alternative to flat government currencies such as the US dollar or the euro or pure commodity currencies such as gold or silver coins for some users.
Bitcoin’s appeal to these followers stems from its decentralized nature: it is not controlled or regulated by a central authority. This distinguishes it immediately from fiat currencies issued by central banks and backed by the government. Fiat currencies are also distributed into a given economy by institutions such as banks, subject to government regulations.
Bitcoin creation and disbursement, on the other hand, is not reliant on government fiat. Bitcoin payments are processed through a private network of computers linked by a shared ledger, and each transaction is recorded in a “blockchain” on each computer at the same time, which updates and informs all accounts.
Bitcoins, unlike fiat currencies, are not issued by a central bank or government system. Rather, bitcoins are “mined” by a computer by solving mathematical problems, or algorithms are used to verify transaction blocks before they are added to the blockchain. Bitcoin can also be purchased with standard national currency and stored in a bitcoin wallet, typically accessed via a smartphone or computer.
Now that we’ve seen a quick rundown of Bitcoin, we can better understand how this leading cryptocurrency can benefit its users.
Bitcoin allows users to be self-sufficient.
Traditional fiat currencies are subject to a slew of constraints and risks. Banks, for example, are vulnerable to the economy’s boom and bust cycles. These situations can sometimes result in bank runs and crashes, as has happened in the past. This means that users do not have complete control over their money. Bitcoin, at least in theory, promises user autonomy because its price is unrelated to specific government policies. This means that cryptocurrency users and owners have complete control over their funds.
Transactions in Bitcoin are pseudonymous.
Most online transactions necessitate a slew of details to identify the person performing the transaction. For example, transferring money from one person to another is only possible after the identifying information for both parties has been verified. Similarly, to make an online purchase, you must enter identifying information. The verification process may help to prevent crime, but it also puts an intermediary firmly in charge of the transaction, allowing them to control the provision of services to specific parties.
Bitcoin transactions are not subject to banking fees.
While it is common for fiat currency exchanges to charge “maker” and “taker” fees, as well as occasional deposit and withdrawal fees, Bitcoin users are not subject to the slew of traditional banking fees associated with fiat currencies. This includes, among other things, no account maintenance or minimum balance fees, no overdraft fees, and no returned deposit fees.
For international payments, Bitcoin has low transaction fees.
Fees and exchange costs are typically associated with standard wire transfers and foreign purchases. Because Bitcoin transactions do not involve any intermediary institutions or governments, the transaction costs are generally lower than bank transfers. This can be a significant benefit for travelers. Furthermore, bitcoin transfers are quick, eliminating the inconvenience of typical authorization requirements and wait times.
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Bitcoin payments are mobile.
Like many other online payment systems, Bitcoin users can pay for their coins wherever they have Internet access. This means that customers do not need to go to a bank or a store to purchase a product.
Transactions in Bitcoin are irreversible.
The blockchain of Bitcoin is immutable, which is one of its characteristics. As a result, blockchain transactions are irreversible and cannot be changed by a third party, such as a government entity or a financial services agency. Furthermore, there is no way to file a chargeback for bitcoin sent to someone else. In a sense, the only way to reverse Bitcoin transactions is for the recipient to send back the original bitcoin.
Bitcoin transactions are safe and secure.
Bitcoin is not a physical form of currency. As a result, thieves will be unable to steal it from the holder. Hackers can steal a person’s cryptocurrency if they have access to the wallet’s private keys. However, stealing bitcoin is technically impossible with proper security. While there have been reports of cryptocurrency exchange hacks, Bitcoin’s exchange has remained unaffected by such breaches. As a result, transactions between two (or multiple) addresses are secure.
Because users can send and receive bitcoins using only a smartphone or computer, Bitcoin is theoretically accessible to populations of users who do not have access to traditional banking systems, credit cards, or other payment methods.