“Bitcoin sounds cool, but why should I use it?”
Most Bitcoin enthusiasts hear something like this when attempting to introduce friends and family to Bitcoin. Bitcoin is exciting, but it’s not immediately clear to most people why Bitcoin is important or useful. Remember, Bitcoin is two things:
- a currency (bitcoin with lowercase ‘b’)
- a payment system and network (Bitcoin with capital ‘B’)
Anyone who uses Bitcoin must see a benefit in using bitcoin as a currency over existing fiat currencies, or in using Bitcoin as a payment system over existing systems like PayPal or credit cards.
Why use bitcoin the currency?
Bitcoin the currency was the first of its kind: a global, decentralized cryptocurrency. While this sounds strange, it actually makes sense. As the world becomes less dependent on states and borders, the internet is a shared space where anyone in the world can communicate or create business. A universal currency not dependent on any single country makes more sense if you view the internet as its own nation-state. Just like temperature, distance, and weight are measured the same way across the world, why shouldn’t there be one unit of account for value?
What specific advantages does bitcoin offer as currency, besides the fact that it’s global?
Bitcoin Isn’t Controlled by a Central Authority
Unlike fiat currencies, which are controlled and issued at will by politicians or policy makers, Bitcoin is just a network of computers. Bitcoin’s rules are set in its code, and can only be changed with consensus agreement. This seems unimportant to most westerners, who are lucky enough to be using decently stable currencies. However, in countries like Russia, Venezuela, or Argentina, government abuse of money supply has sapped the wealth and savings from hundreds of thousands of families.
Bitcoin is different, because it requires consensus and no single organization or authority has the power to issue new money, block or filter transactions, or create new rules. This leads us to the next reason…
Bitcoin’s Supply is Capped at 21 Million Bitcoins
Unlike fiat currencies, which almost always die out due to inflation, Bitcoin’s consensus rules ensure that there will only be 21 million bitcoins. How do we know this? Let’s look at what would happen if someone were to try to create new bitcoins.
Since Bitcoin is open source code, anyone can copy the current Bitcoin code and create their own version. Let’s imagine your friend Bob created a new version of Bitcoin. He decided that this version of Bitcoin will give him, and only him, 10 bitcoins per day, in addition to the already set 21 million cap. Why wouldn’t this work? Couldn’t Bob get rich? No, since Bitcoin requires consensus rules, and Bob changed the rules. Other instances of the Bitcoin software would treat any transactions created by Bob’s version of Bitcoin as invalid.
Anyone can try to create new rules, increase Bitcoin’s supply, or block transactions. But in order for this to happen, the entire Bitcoin network must agree. Since any change that gives an unfair advantage to any one party wouldn’t be agreed upon, we can be positive that Bitcoin’s supply cap will remain at 21 million.
With a limited supply, Bitcoin eventually becomes a deflationary currency. Unlike fiat currencies, which encourage spending, debt, and lending, deflationary currencies encourage saving. Assuming the number of Bitcoin user’s continues to grow, the price of one bitcoin must increase in order to absorb new investors and users. Like gold, commodities with fixed supplies retain value by providing stability and predictability to investors.
No Capital Controls
Capital controls are another topic that most western countries don’t understand or care about. But for citizens in countries like Greece or Cyprus, capital controls are real and limit how people can use their own hard-earned money.
Because Bitcoin is just a network and not controlled by a single authority, there are no send limits and no transactions can be blocked. Bitcoin may be the only way to send an unlimited amount of money anywhere in a place with capital controls.
Why Use Bitcoin as a Payment System?
We live in a digital world. You can video chat with a friend in China while you’re in Europe in a matter of seconds. But, how would you send that same person $1,000 in the same amount of time? You couldn’t. With Bitcoin, it’s possible to send money from anywhere in the world, to anywhere in the world, all in a matter of seconds.
Bitcoin is Fast and Global
All that’s needed to send or receive Bitcoin is a Bitcoin wallet, which can be downloaded on your computer, phone or tablet. Once two parties have a wallet, the recipient simply shares an address with the sender. Once the payment is sent, the recipient receives the bitcoins in a matter of seconds. Again, it doesn’t matter where these two people are located. Bitcoin is global and works anywhere in the world.
Bitcoin is More Private than Existing Payment Systems
As mentioned earlier, all that’s needed to send or receive Bitcoin is a digital wallet. Unlike opening a bank account, which requires private, personal information, a Bitcoin wallet can be created by anyone without giving up sensitive personal details.
To show how Bitcoin is more private than existing systems, imagine you have a Bitcoin wallet and need to send someone $10 worth of bitcoin. The recipient provides you with an address that looks something like this: 153SbvgKgUCU4MpzN3e5wf6UK7b6Gr2Ray.
Anyone could provide you with a receiving address. Imagine you found an anonymous person online, and were provided with the address above. You’d be able to send this person money without knowing their name or location. Before Bitcoin this was not possible.
Bitcoin is Great for Merchants
It may feel easy to make a purchase with your credit card. You just swipe your card and receive your goods. In reality, credit card transactions are much more complex. For the merchant, a credit card transaction can take more than 60 days to be confirm with a payment processor like Visa or Mastercard. This means a merchant may not actually be able to spend the income from your purchase for 2-3 months! That’s not to mention the risk of fraud and chargebacks.
Bitcoin works more like cash. If a merchant receives cash, it can feel confident that the transaction is complete. Bitcoin payments are irreversible as well, so merchants can accept Bitcoin with confidence and don’t have to worry about fraud or chargebacks.
Because a digital wallet is all that’s needed to receive Bitcoin, any merchant with a phone or computer can accept Bitcoin for free. There is no need to sign up with a payment processor like PayPal or Square, and 100% of the payment amount hits the merchant’s pockets.
Bitcoin Payments are Secure
Each time you swipe your credit card, you must trust that the merchant accepting your payment will keep your card details secure. This is because credit card payments are pull payments: you allow a third-party to view your account details, and trust them to both debit only the correct amount and keep your information safe.
Bitcoin is the opposite: Bitcoin payments are “push” payments. The owner of bitcoins must approve each transaction, just like an email can only be sent by hitting “send”. Push payments create unique use cases.
In 2013, a college student held up a Bitcoin QR code on national television. The QR code contained the student’s Bitcoin address, which was now publicly available to hundreds of thousands of national viewers. These viewers opened up their Bitcoin wallets, scanned the student’s QR code, and sent donations. The student received about $24,000 worth of Bitcoin. Try doing that with credit cards or bank transfers!
Bitcoin the payment system and bitcoin the currency are already making a huge impact on the world. And this may just be the beginning. The true impact of Bitcoin is unknown, and new use cases are sure to pop up as the $1 billion of venture capital poured into Bitcoin startups goes to work.
All credits to Jordan Tuwiner and WeUseCoins.com.
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