Advantages and disadvantages of bitcoin

In 2009, Satoshi Nakamoto came up with the idea for Bitcoin, and he is the person responsible. It belongs to the rapidly expanding trends in digital money transfers in the current generation. By using cloud-based digital wallets, technology now makes it possible for people to send money online to other people (Barrdear & Kumhof, 2016). In terms of money transfers, Bitcoin is the upcoming giant. Since it is becoming more and more popular, it is soon anticipated to surpass current technology. Compared to the current market-available money transfer methods, this mode of payment is different in many ways. The financial system is essentially open, to start. Unlike profit-seeking companies that oversee and manage the running of currencies, unlike profit searching firms which control and manage the running of banking institutions and credit card networks.

Unlike some companies like PayPal and visa which uses the formal currency, Bitcoin uses its currency, the Bitcoin itself. People can transfer by using their smartphones or the computer system can just ‘mine’ (the process through which transactions are approved and then included in the public book called the blockchain, as well as the process through which the new Bitcoin is released) (Barrdear & Kumhof, 2016). The mining procedure involves assembling all recent transactions into a block and then tries to solve the complex puzzle technologically. The person who becomes the first one to find the solutions for the problem among the participants get an opportunity to place another block in the blockchain and receives the prize (Barrdear & Kumhof, 2016). The gifts include which encourage mining are the transaction fees connected with dealings collected in in the block and equally the newly circulated Bitcoin. This currency functions as the conventional currency and can be used to buy everything with zero limitations and everything to do with the Bitcoin is stored on the computer. This paper will examine the negatives and positives of the Bitcoin relative to the usual currency common to every individual.

The positive elements of the Bitcoin

The network processing power of the Bitcoin: the bitcoin offers a public ledger which is more straightforward and quick to apply in accounting processes because the process approves the validity of all transactions is not prone to counterfeiting and offers a platform on which complex infrastructure can be built. In the traditional currency method, these strengths can be obtained by working with a business which trades in services or by hiring experts to manage them (Barrdear & Kumhof, 2016).

. The Bitcoin process cannot be manipulated: the currency value is subject to manipulation by wealth merchants because the cumulative market caps are still low but the practical supply of the coins are not subject to this (Barrdear & Kumhof, 2016). It implies that the fundamental rules are not subject to change, neither does the system offer particular advantages to a specific group of people. The Bitcoin is fundamentally different from the common currency which a limited number of people manage; the management of Bitcoin dealings is by consensus of every one person involved (Barrdear & Kumhof, 2016).

Transactions with Bitcoin are instant. When a Bitcoin is transferred, the operation instantly begins reflecting through the network. The person receiving the money can immediately or within few seconds notice that money has been sent to his accounts. Once the confirmation is complete, it is technically impossible to invalidate the transaction (Barrdear & Kumhof, 2016).

The transactions dealing with Bitcoin cannot are irreversible. The effectiveness of this system is tremendous, at least at these initial stages. It is evident that the Bitcoin eradicates the dangers of charge-backs, which currently hinder the online trade and escalate the cost of acquiring goods; it permits dishonest traders to receive bitcoins and then fail to provide the agreed services and products (Danilina, Podlinnova, & Silaev, 2015). Nevertheless, this weakness affects the least known traders because it is illegal to do such and large firms have a tendency of maintaining a good reputation and therefore stand a chance of honoring agreements (Danilina, Podlinnova, & Silaev, 2015). Various stakeholders are working harder to come up with the solution of the challenge, and the prospective answer may be an arbitration framework or decentralized escrow (Danilina, Podlinnova, & Silaev, 2015).

The Bitcoin process is transparent: the reason for this assertion is that there is no hidden information when dealing with it. Unlike the standard currency where the internal operations with the Federal Reserve are challenging to predict or determine the available amount of gold or which may be available in the future days, the dealings of the bitcoin are open to all people (Danilina, Podlinnova, & Silaev, 2015). The code which establishes the operations of the Bitcoin is accessible to anyone and all people able to read have no limitation of doing so. The number of coins, the manner in which transactions run or what stands to happen in any hypothetical event is subject to evaluation. The changes to the code are open to propositions and testable outside by any interested individual (Danilina, Podlinnova, & Silaev, 2015).

The transaction efficiency of Bitcoin is unmatched: in this system, the ledgers are handled by the computer system, and the manner in which transactions are completed and recorded uses technological computations and mathematics (Danilina, Podlinnova, & Silaev, 2015). Thus, it is verifiable and subject to negligible errors. The automatic process is efficient than any other payment system which depends on human beings to process (Danilina, Podlinnova, & Silaev, 2015). The bitcoin framework does not need paid labor as compared to the traditional setup. In this instance, it is the miners who have to get paid, and customers are ready and willing to operate mining machines provided that their income is more than the energy and maintenance costs (Danilina, Podlinnova, & Silaev, 2015). It offers a reason why cryptocurrency and blockchain will persist even though Bitcoin becomes redundant. The efficiency of the technical processing the transaction cannot be matched, except only possible by a decentralized electronic system.

Further, Bitcoin is divisible into an infinitely small number of units: presently it is possible to break down one bitcoin into 100,000,000 small pieces called satoshis (Danilina, Podlinnova, & Silaev, 2015).

Most of the points discussed above are purely accurate except only the reversibility of transactions. Other folks can argue that the scarcity supported may result in deflation but the production of new bitcoins will proceed up to over one century, and the biggest challenge with traditional deflation is real shortages on the units of money (Danilina, Podlinnova, & Silaev, 2015). As the last point above espouses, bitcoins can be broken down into numerous decimal points as the situation may demand. In case one satoshi grows so valuable to the extent that it is effectively applied in the market, then it is possible to divide one unit into ten small satoshis (Danilina, Podlinnova, & Silaev, 2015).

The disadvantages of Bitcoin

First, understanding how bitcoins work is complicated. The creation, safety of the network, the recording of transactions of the blockchain, and verification is not easy to understand. Nevertheless, when a person captures the basic functionality of Bitcoins, then they instantly comprehend the significance of bitcoins (Hurlburt & Bojanova, 2014). However, putting mathematics aside, individuals or cryptographers who take a considerable amount of time to learn about bitcoins, it is not a significant number which genuinely comprehends the degree of what blockchain has achieved. This challenge is a considerable limitation for new entrants and users (Hurlburt & Bojanova, 2014).

Secondly, the security or friendliness of bitcoin wallet is not a guarantee. It is easy and quick to learn and use online portfolios, but people need to trust third parties to hold their finances, and there is a possibility of hacking or corrupting third-party networks (Hurlburt & Bojanova, 2014). On a different context, the majority of offline wallets are secure or may be secured by using encryption with a robust password, but their usability is not very easy for a person who is inexperienced in cryptocurrency (Hurlburt & Bojanova, 2014). But, it is important to note that several security advances are being tested in this section, and bitcoin is becoming easier to understand and use. However, the journey is long until fully understand bitcoin efficiency (Hurlburt & Bojanova, 2014).

Thirdly, fraud and scandals are widespread in the Bitcoin framework. Most people liken Bitcoin with Wild West, and to some extent, the comparison appears accurate. The transactions presently undergo strict scrutiny to prove solvency, and have to acquire several approvals to safeguard funds of clients (Hurlburt & Bojanova, 2014). Although work is still going on to ensure there is proper licensing in home countries, that procedure is deemed to take a bit long to gain full actualization. Some services working under the pretext of bitcoin for instance pre-sold altcoins, gambling sites, or cloud powered by mining farms have disappeared with merchants coins because of hacking or poor security (Hurlburt & Bojanova, 2014).

Fourth, the USD-bitcoin conversion rate is erratic and often volatile. This limitation has made some people bankrupt while others millionaires (Rainie & Page, 2017). It is one of the most significant weaknesses of this fast-growing currency. Financial experts suggest that investors should not look for bitcoins as opportunities for long-term investment unless one is frequently watching the market trends and heavily involved in the processes Rainie & Page, 2017). The primary tenet of the development of bitcoin is not an investment, but digitalization of payments and currency drives the innovation (Rainie & Page, 2017).

Finally, the bitcoin system is not perfect. There are significant chances of bitcoin evolution so that other structures are added to the current system, or it may be replaced entirely. Possibly, this is the reason many people have not got involved with its operations (Vandervort, 2014). However, it is prudent for people to keenly monitor the turn of events. It is wise for people to keep their money spread across several cryptocurrencies and conventional currency. The reason is that if there is failure on one coin, then an individual shift to other currencies not to suffer massive losses (Vandervort, 2014).

The future of Bitcoin, gold and conventional currency

The standard or fiat money has several flaws which will possibly permit the adoption of bitcoin as the primary tool for completing exchanges. Some of the limitations of cash include the following.

First, inflation and central control: people are easily corruptible, and those in leadership have convinced their followers that some percentage of price increase is a good concept. In some way, this perspective is not correct. A small rate of inflation is a reasonable thing occasionally, and deflation should be usual for all currencies at some time. But, when price increase happens one year after another it becomes a way of stealing from the public in a manner which not visible.

The most significant weakness of gold also compounds as its strength. It is resilient, divisible, not portable, and useful and its production is difficult. In a non-digital context, with less connected economies, gold serves as a terrific currency. Its weakness is that it cannot keep up with technology. Moreover, its transportation is difficult or next to impossible, because of transportation costs, which limits its usage.

Conclusion

Bitcoin is free of common currency weaknesses because it is transparent and decentralized as well as applicable in the blockchain. Besides, the mining strength backs up the advantage of bitcoin over usual cash. Nevertheless, it has a long way to go for it to be fully applicable and understood because there are many issues which must be worked out. It is profound to note that the concerns with Bitcoin are not in the original currency or the system itself. In some way usage of bitcoins or similar technology is inevitable in the future. Money must go the digital route to prevent some substantial disasters from happening, which affect humanity from happening. With the efficiency which comes with the use of technology, the current methods of handling currency will disappear.

References

Barrdear, J., & Kumhof, M. (2016). The macroeconomics of central bank issued digital currencies.

Danilina, M. V., Podlinnova, A. G., & Silaev, A. S. (2015). «E-gold»: the Advantages and Disadvantages. Глобальный научный потенциал, (1), 101.

Hurlburt, G. F., & Bojanova, I. (2014). Bitcoin: Benefit or Curse?. IT Professional, 16(3), 10-15.

Rainie, L., Anderson, J., & Page, D. (2017). Code-dependent: Pros and cons of the algorithm age. Pew Research Instititue. Recuperado de www. pewresearch. org.

Vandervort, D. (2014, March). Challenges and opportunities associated with a bitcoin-based transaction rating system. In International Conference on Financial Cryptography and Data Security (pp. 33-42). Springer, Berlin, Heidelberg.