The Good and the Bad of Bitcoins
The Bitcoin is a revolutionary unit of currency—it's entirely digital, a currency that doesn't have any physical representation in the real world. Bitcoins are not even traded like conventional money, and in a sense it can be said that Bitcoins don't actually exist, even in digital form. While it's a concept that's initially difficult to understand, the use of Bitcoins does have some definite advantages—similar in some respects to those of Multinational currencies like the Euro. Those advantages are, of course, counter-balanced by some disadvantages, so it's important to weigh up the pros and cons when considering using this non-traditional form of currency.
Advantages: Security, Control, and Freedom
Making and accepting payments online is fraught with difficulty, and one of the biggest potential problems that consumers face is online fraud and identity theft. If you're someone who makes online purchases frequently, protecting yourself from online identity fraud is extremely important. One huge plus for individual Bitcoin users, therefore, is that payments can be made with Bitcoins without any personal information being entered at all. It's even possible for Bitcoin users to back up and encrypt their own digital Bitcoin wallet, for an extra layer of safety. For online retailers, there's an additional advantage, in that payments can't be revoked once made. Protecting yourself from charge-backs—where customers make purchases and then dispute their credit card payments—is important simply because of the additional administrative work they require. When charge-backs are made fraudulently, it's even more frustrating, time-consuming, and expensive. From this perspective, the beauty of Bitcoins is that all payments made using this form of currency are 100% irreversible. Once you're paid, that payment cannot be reversed by any means. However, while this is great for merchants, it could be considered a disadvantage from the customer's point of view. The counter-balance, of course, is extent to which individual Bitcoin users can protect their digital currency, and people who are using Bitcoins are typically people who are comfortable with these kinds of digital security issues.
Bitcoins are a completely deregulated currency: there's no central authority controlling how the coins are created, traded, or spent. Bitcoin users can remain completely anonymous, if they wish. They can create their own digital Bitcoin wallets on their own personal computer, without having to part with any identifying information. They can also create as many separate Bitcoin wallets as they want.
There are plenty of logistical advantages to using Bitcoins, too: transactions that use this form of currency are faster than other current methods of exchange: a typical transaction involving Bitcoins is completed within an hour, while other methods of online payment take a minimum of two to three days. For Bitcoin users, another important benefit is that there are no transaction fees of the kind charged by services like PayPal.
Disadvantages: The Other Side of the Bitcoin
Many of the advantages that make Bitcoin such an interesting and exciting prospect are the very same things that also make its use a potential risk. For example, the lack of a centralized authority that controls how Bitcoins are used is a huge advantage for people who tend to be critical of bureaucracy, because it means banks and other authority organizations aren't in control of that currency, aren't taking their cut in transaction fees and other types of payments, and have no influence in how the currency is distributed. For others, this lack of organization is a disadvantage, because it means they have no recourse to getting help if they run afoul of fraudulent activity. That's also the flip side of the “no transaction fees” advantage—services like PayPal charge a fee, but they also provide protection and peace of mind in the event that there are problems with transactions.
There's also the fact that there's a limited supply of Bitcoins, and once they've all been released, no more of them will ever be made. People can earn this digital currency by lending their computer power to a process called “mining,” in which digital currency payments that have been entered into the Bitcoin ledger are recorded and verified. Mined Bitcoins can be sent and received via users' digital wallets using software installed on a digital device. It's also possible to buy Bitcoins that have already been “mined,” but once all 21 million coins in existence are located, that's it, there's no more to generate. It's estimated that this will happen by around 2140. So that's a good, long time, and it's not a problem for those of us alive and using Bitcoins today—but there's no way of knowing what's going to happen to the currency once that limit is reached, and for some, that uncertainty about the future makes Bitcoins a risky prospect in the present.
by Gemma Burnside
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