Bitcoin As Medium of Exchange 2020

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Bitcoin has been designed to have a lot of desirable properties of a money-like good. It is portable, divisible, recognizable, durable, scarce, hard to counterfeit, and fungible. It is also widely accepted and can be bought and sold just about anywhere globally, especially in the first world. This can be done in a variety of ways; for example, some bitcoins can be transferred to a debit card specially programmed to accept bitcoins and can be used to transact as a standard debit card.

Relationship between Bitcoin and a standard currency

It should be noted that a Bitcoin’s value can be volatile, there is still little mechanism that encourages stability or works towards avoiding bubbles, although its supply is prearranged. In many a Bitcoin casino, this usually gives on to commerce being denominated in a stable currency, for example, the USD. This is also similar to how in some less stable countries, euros or dollars are preferred, and the end settlement takes place in the local currency.

Bitcoins are not issued by any government or its central bank like any other fiat currency. It is mined using and by a computer where it uses a process of complex mathematical algorithms to establish transaction blocks that are added to the blockchain or are purchased using regular currency and placed into what is known as a Bitcoin wallet. This is then easily accessed through a computer or smartphone.

What are the benefits of Bitcoin?

  1. Discretion

Bitcoin purchases remain to be at the buyer’s discretion. Unless a user publicly publishes their Bitcoin transactions; these purchases are never associated with their identity; this is much like cash-only purchases. This means that they cannot be easily traced back to the buyer. Something worth noting is that the anonymous Bitcoin address generated for user purchases tends to change with every transaction. This is not to show that Bitcoin transactions are completely anonymous and untraceable; they are much less readily linked to someone’s identity than other traditional payment forms.

  1. User autonomy

Autonomy is one of the central tenets of cryptocurrencies and the primary draw of Bitcoin. Digital currencies give their users more autonomy over their money more than fiat currencies do. Users usually control how they deal with their money without a bank or even the government’s involvement.

  1. Peer to peer focus

The payment system is associated with Bitcoin purely peers to peers. This means that users can send and receive payments to or from anybody on the network around the globe without any requirement of approval from an external source, bank, or authority.

  1. Little transaction fees for international payments

For standard wire transfers and any foreign purchases, fees and exchange costs are involved. However, Bitcoin transactions do not have an intermediary institution or any government involvement, and thus the transaction costs are kept low. This could be an excellent advantage for people who travel a lot. Another plus side is that a transfer done in bitcoins takes place very fast. This eliminates the inconvenience of a typical wait period with its authorization requirements.  

  1. Goodbye to banking fees

It is a standard procedure among cryptocurrency exchanges to charge what is referred to as taker and maker fees; this goes hand in hand with occasional deposit and withdrawal fees. Bitcoin users are exempted from the litany traditional banking fees project on their clients. They are not charged for account maintenance, a minimum balance in the account, and no overdraft charges, among others.

  1. Accessibility

Bitcoin is theoretically available to many users as it is possible to send and receive bitcoins with only the aid of a smartphone or a computer. This beats the traditional banking systems, credit cards, and other related modes of payment. 

Cryptocurrencies do however suffer from several drawbacks, some of these are:

  1. Scalability

Some of the biggest concerns with any cryptocurrencies are the issues related to scaling that are present. While the amount of digital coins and adoption is on the rise, this is still shadowed by the transactions that the payment giant, VISA undertakes every day. Besides, the speed in which a transaction takes place is an essential metric that, as per now, cryptocurrencies are unable to compete with on the same playing field. This is until the infrastructure of this technology is scaled up effectively. However, some have proposed a few solutions, such as the inclusion of lightning networks, staking, and sharding as viable options to overcome this issue.

2.    Cybersecurity threats

As with any digital technology, cryptocurrencies are at risk of cybersecurity breaches and could fall into hackers’ hands. In order to mitigate this process, continuous servicing of security infrastructure is needed. However, many players can be seen dealing with this head-on and using enhanced cybersecurity measures.

3.      Lack of intrinsic value and price volatility

When these two come together, a significant problem is born. Assume that the cryptocurrency ecosystem is a bubble. It is an essential concern but can be overcome by directly linking the cryptocurrency value to tangible and intangible assets. Increased adoption should decrease this volatility and increase consumers’ confidence.

4.      Regulations

Even if the technology is perfected and the problems listed above eradicated, until the Federal government adopts and regulates this technology, there is always a looming risk while investing in it.

Most of the other concerns related to technology are, for the better part, logical. A good example would be changing protocols; this becomes necessary when improvements are being made to the tech. This can take a long time, which inevitably affects the normal flow of normal operations.

Conclusion

 With the potential hindrances to mass adoption, it is good to note that cryptocurrencies are here to stay. They present many more advantages that consumers are looking for in currency in this day and age; transparency, flexibility, and decentralization being top among them. Expanding this discussion to what cryptocurrencies can accomplish among many other industries tends to reinforce this point further.

References

1.       What are the disadvantages of cryptocurrencies?  By Sofiane Boukhalfa

2.       What Are the Advantages of Paying With Bitcoin? By Nathan Reiff