For bitcoin to successfully work and function in society, its advantages have to be at least equal or more superior than the features offered by traditional monetary systems that we are familiar with. So why use bitcoin?
Bitcoin has been called the currency of the Internet, and to an extent even the Internet of currency, a claim that must be supported by characteristics that allow bitcoin to function well as currency – as a store of value, and as a convenient medium to communicate such value.
The following looks into the advantages and features of bitcoin as currency and as a payment method.
|The network is maintained by hundreds of thousands of mining servers across the world. It is not in one place, and yet it is everywhere. Being decentralised and like the Internet, no one controls it, and no one can shut it down. This makes the network robust and resilient against security threats.|
|The Bitcoin network is always open, and money in the form of bitcoin can be sent to another user or corporation at any time of the day or week, without being subjected to the operating hours of the bank. A person can send bitcoin to another person on a Sunday at 3.00 in the morning, no questions asked.|
|The Bitcoin network operates without borders, and like email, a user only needs the wallet address of the recipient, and bitcoin and their equivalent in dollars can be transacted instantly. This makes bitcoin suitable for international transaction of money, such as for online shopping and charity donations.|
|A transaction is typically completed within a matter of seconds. Transfers from a user’s personal bitcoin wallet to an exchange site may take a little while longer, but it is usually way faster than transactions performed by the bank. The practice of waiting 3 days for a cheque to clear will eventually become obsolete.|
|Whether bitcoin is sent in the equivalent of a hundred or a million US dollars, the transaction charges remain low, typically less than a dollar. This is a huge advantage over the high telegraphic transfer fee imposed by banks, as well as the transaction fee charged by remittance companies like Western Union and MoneyGram.|
|Based on the current value of bitcoin of about US$1,000, this means that the smallest bitcoin amount of 0.00000001 btc (also known as one satoshi or 100 millionth of a bitcoin) is equivalent to a fraction of a cent. This scalability allows bitcoin to be transacted in quantities smaller than fiat currencies, and makes payments of minute amount such as commissions for online ad viewing or loyalty programmes possible.|
|There will only be 21 million bitcoin which will be fully mined by the year 2140. This is coded in the way Bitcoin works and cannot be altered. This makes the supply of bitcoin finite, and unlike fiat currencies which can be printed by central banks through quantitative easing, makes bitcoin anti-inflationary / deflationary by virtue.|
|Storing and transporting a high-value virtual currency is a lot more convenient and safer than transporting the equivalent in cash in a suitcase, or worse, moving gold bullion bars under the protection of armed guards across national borders. This may also make bitcoin a suitable medium as a safe haven asset in times of national financial crisis.|
|For the personal wallet, private and public keys make authorised payments secure, and multi-tiered security levels are provided, including SMS code input and 2-Factor Authentication login, and secondary password for sending payment. With no personal information attached to a payment, bitcoin transactions on the blockchain are incidentally more secure than conventional transactions made via online banking or with credit cards.|
|While anonymity (or pseudonymity rather) is regarded as one of bitcoin’s features, a transaction remains identified in the string of code, which is recorded and can be traced and tracked. If required, the identity of the person may be discovered once the transacted bitcoin is converted to fiat currency at an exchange that complies with KYC/AML regulations.|
So, Can Bitcoin be Hacked?
No, Bitcoin cannot be hacked in the very same way that the Internet cannot be hacked. The blockchain offers a level of security that requires a significant amount of money and resources, estimated to be in the tens of billions of US dollars, to successfully hack. And even then, it will only hold transactions back by one block, which resumes and becomes corrected by the next block in the next 10 minutes.
However, personal wallets, in manners similar to personal email accounts and online bank accounts, may be open to threats of hacking. Nevertheless, the multi-tiered security levels offered by most bitcoin wallets make them very secure, and in most cases than not, more secure than the traditional online banking that we are accustomed to. A user just has to be very careful with his or her private keys and passwords, as with any account pertaining to money and personal information.
News of hacked accounts and lost bitcoin are not uncommon in the past, and that is often due to the weakness of exchanges and human error, much like how an online bank account can be hacked into by using phishing sites, or when one is not careful with credit card information and CVV codes.
The other precaution to note is while Bitcoin cannot be hacked, exchanges may still be hacked if security measures are not up to par, and one would be wise not to leave excess amount of bitcoin or currencies with an exchange. An exchange is after all, no different from a bank or a money changer. Holding and storing the private keys of many owners in a centralised location is bound to be more appealing to the hacker who sees all the eggs in one basket.
Similarly, one would not leave money at a local bureau de change (or money changer), as the money would be permanently lost if the money changer was broken into or robbed. This is an advice that would be wise for the bitcoin user to heed.
Although this was true in the days of Mt. Gox years ago, exchange sites have much tighter security levels these days, and incidence of hacking, if any, are often dealt with swiftly and safely.
The strength of Bitcoin is in its decentralised peer-to-peer network. Likewise, it is to the best interest of the user to secure his own bitcoin in his personal wallet, and to retain custody of his own private keys. After all, the purpose of Bitcoin is to put the power of banking in the hands of the user, and more so for the billions of unbanked adults around the world.
As such, exchanges should be treated for what they are – for the purpose of trading and exchanging cryptocurrencies – and not as a vault for storage of your cryptocurrencies.
Why Use Bitcoin | As a Safe Haven Asset
The argument of gold versus bitcoin as to which reigns supreme as a better safe haven asset persists. This section doesn’t claim one to be better than the other, but consider the following scenarios.
When Greece’s financial crisis eventually hit rock bottom in 2015 followed by bank account freezing and seizure by tax authorities, those who had a portion of their savings in bitcoin could retain their wealth in a form not seizable by the government.
When Brexit happened shortly after as a result, the British Pound fell by about 0.8% when Great Britain voted to leave the EU. At the same time, the value of bitcoin increased by almost 9%, giving bitcoin holders an advantage in the value of their savings. Those who knows bitcoin understand that while the volatility of bitcoin may not suggest it as a currency replacement, it behaved as a digital gold at the time when it was needed as a safe haven asset.
When the demonetisation of the 500 and 1000 Rupee banknotes took place in India towards the end of 2016, the sudden announcement created significant disruption in the economy leading to severe cash shortages. This had also led to an increase in the value of bitcoin in India as it did in Great Britain during Brexit just 5 months earlier.
Bitcoin has often been referred to as digital gold, given the way this cryptocurrency stores value in similar ways to its precious metal counterpart. But unlike gold, moving and transporting bitcoin is far more convenient, more easily transactable, more easily divisible and, much safer.
Financial Crisis is the Mother of Bitcoin Invention
Here’s another video montage that elaborates on the bitcoin – when it started and where it is expected to head.
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