Bitcoin is a peer-to-peer form of electronic cash that does not require any third party to be involved for a transaction to take place. A revolutionary invention, the Bitcoin digital currency aims to cut the middle man and give the power to the regular consumer when it comes to sending and receiving money. It does this by substantially cutting fees and limits compared to the usual way to send and receive money (e.g. using a bank).
No one controls the Bitcoins you own, except you – the owner. In contrast, when you have deposited money at a bank, both the bank and the Government essentially oversee what you are doing with the money and for whatever reason, at some point in the future you, there is a possibility that you may lose access to your own funds. In this sense, Bitcoin has a clear advantage and is literally like cash since only the owner can have access to it. Thus, Bitcoin is frequently referred to as digital cash.
The Bitcoin network is fully transparent and the code is publicly available and can be viewed by anyone. Transactions are recorded in a public ledger that all Bitcoin users have access to, known as the Blockchain. To understand this key aspect of Bitcoin, take a look at this post that explains what Blockchain is.
However, its popularity is also starting to work against it as transaction time and transaction costs have surged over the years. Because the Bitcoin network uses miners to verify transactions by solving demanding hash puzzles, more time and more powerful computers are needed to solve them. This has led to some critics stating that Bitcoin is unsustainable since the whole network alone is set to use more power than a country like the US in only a few years from now.
Some other problems with Bitcoin include the fact that stolen or lost Bitcoins are almost impossible to recover. In this regard, keeping money with a traditional institution like a bank has an advantage because banks can in many cases recover your lost funds once you prove your identity.
All in all, there is certainly something innovative and new that Bitcoin offers, but most people are still reluctant to fully trust it. And in fact, there are dozens of other cryptocurrencies in existence today that were launched after Bitcoin, many of which try to improve the aspects where Bitcoin is lagging.
And that’s exactly what we’ll discuss in our future articles in the coming weeks, so stay tuned.
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