In previous years, bartering was conducted face-to-face so that the participants could verify that the items were being exchanged. However, as the distance between buyers and sellers become greater, there was a need for trusted third-party agents to act on the behalf of buying participants to verify the property being transferred. The growth of the internet and introduction of digital transactions exposed the idea of an international currency designed to enhance this globalized economy. The currency would provide anonymity to holders and usage of a digital cash concept over the internet.
The currency is known as bitcoins or BTC and first came into use in 2009. According to CEO of the Bitcoin payment method, Bitpay, this method of payment is a faster and more affordable means of transferring funds between parties. The virtual currency allows for instant payments, does not require a third part, and does not allow payments to be reversed. This article further examines Bitcoin and looks at the different pros and cons of the process.
What Are The Pros To Using Bitcoin?
One of the greatest benefits to using bitcoin is that it provides protection from payment fraud. As a digital currency, any payment using bitcoin cannot be reversed by the sender and it cannot be counterfeited.
2. Direct Transfers For Payment
Purchasing larger assets, particularly real estate, will typically involve the presence of third party individuals such as real estate agents. Furthermore, there will be a need to pay fees for the real estate agent. In many ways, the Bitcoin contracts can avoid these issues by eliminating any third party involvement or delays for payment. Direct transfers also remove commission fees meaning there is no additional amount to be paid.
3. Reduced Fees
As is indicated above, there are usually no transaction fees when completing Bitcoin direct exchanges. Unfortunately, while Bitcoin does not require or add any additional transaction fees the use of a third party service will provide a transaction rate. For example, a service like Paypal will provide an online exchange system for Bitcoin and is likely to charge the individual a fee. It is interesting to note that Paypal does not transfer or accept Bitcoin.
When using a credit card, you will provide a merchant with access to all personal information even if the transaction completed is a small amount. All credit cards are based on a ‘pull’ basis where the merchant initiates payment. Bitcoin, however, utilizes a ‘push’ technique allowing the Bitcoin holder (that’s you) to send specific information to the merchant. Furthermore, Bitcoin transactions do not require any buyer names and use only digital wallet identity numbers.
What Are The Cons To Using Bitcoin
1. Financing Illegitimate Activities
In 2013, the FBI closed the operation of an infamous website known as Silk Road. This website operated as an anonymous hub for the buying and selling of drugs, guns, assassins, and provision of tutorials for hacking ATM machines. The operation of Silk Road was based entirely on digital currency or bitcoin transactions. These points to one of the major disadvantages from Bitcoin transactions – the financing of illegitimate and immoral acts.
Federal cases have found that Bitcoin has been and is being used to assist in operating various criminal activities. The activities include many acts ranging from stealing identities and human trafficking to the illegal sale of weapons or drugs. It is a favorite method whereby cyber criminals pay for services, such as distribution and development of malware.
2. Increased Risk Of Loss
To date, there is no 100% secure safety net to protect one’s bitcoins from a risk of loss. While it is possible to use passwords and protective software, hackers are still able to steal Bitcoin. The authors of a study in Wired found that the average lifespan of a direct Bitcoin exchange is 381 days with approximately 30% chance that the exchange will close within twelve months.
3. Poor Regulations
Despite the benefit of use, Bitcoin guidelines are relatively poor and law enforcement does not have a strong hold on the Bitcoin concept. This means that the Bitcoin scheme is open to money laundering situations unless more stringent regulations are put into place. Unfortunately, by putting these stringent regulations into place one would reduce the value of this digital currency.
4. High Volatility
According to finance professor Campbell Harvey, Bitcoin has presented as being approximately 7.5 times as volatile as gold over the past three years. This level of volatility in digital currency movement within such a short period limits the Bitcoin as a significant vehicle for interaction. Many individuals feel that the current market is open to speculation and, with high volatility, it is better to wait for Bitcoin to rise according to speculation.
Final Words On The Matter
In a short period of time, the bitcoin digital currency has captured the attention of people across the board; however, is this the ideal option? Using the pros and cons you can choose whether or not bitcoin is the best option for your needs.