It’s clear that in a global economy, there is a need for money to change hands at a quick and reliable pace all across the globe, and some options, like Bitcoin, seem to offer a solution to this challenge. In fact, it’s claimed that cryptocurrency offers advantages that no other means of money exchange can. It promises speed, favorable exchange rates and transfer fees, and discretion.
However, it has also generated a lot of criticism because there is no central bank or government to regulate it, and how this ‘third currency’ exactly works is still somewhat of a mystery. Is paying with the digital currency Bitcoin better? Here’s what you need to know.
How it works
Bitcoins are not real – it is virtual currency, although it can be argued that if people place a value on it, then it could be considered real. In essence, it’s a currency that doesn’t move around like cash. It’s a currency that lives in the computer world, and that is transferred from one account to another. Bitcoins are either ‘mined’ by computers solving complicated algorithms, or exchanged into real currency. A person holds a Bitcoin wallet, an account, through which he or she can make transactions with other people who also hold Bitcoin wallets.
Bitcoin transfers are not associated with identity, so it could be argued that the users of Bitcoin currency can remain completely anonymous. Much like cash-only transactions, there is no paper trail to see who transferred what to whom.
No interruptions, no control
There are no interruptions from third parties (a government or a central bank) and hence there is no legal control of what is allowed and what is not. It’s just a simple, deregulated money transfer system. This may be convenient or dangerous – depending on where you stand on the issue.
The transfer fees are really low, and since there is no government control, purchases are tax-free. Exchange costs are also kept to a minimum.
Since it uses the Internet and Bitcoin accounts are virtual, you can make transactions while on the go, via mobile devices.
While all this may sound great, the fact that there is no central government or bank to regulate transactions means that there is no central body which can intervene when the system crashes or when illegal actions occur. Furthermore, since there is no measuring stick (like the gold standard, for example), it’s hard to figure out what the virtual currency is really worth, exactly. The debate over its true merit still rages on, but whatever side you’re on, you have to admit it’s a very interesting experiment that can have far-reaching consequences.