Given that bitcoin was created in large part to serve as an alternative to fractional-reserve banking , it’s not surprising that it differs in some pretty significant ways to traditional currency and payment systems. Here are a few of the key differences:
1. It’s decentralized
Individual users are in control of their bitcoin. There is no central authority that can manipulate or seize control of the bitcoin network.
2. Personal information is not traceable to transactions
This is both a pro and a con in that it protects users from things like identity theft, but it also led to bitcoin becoming a popular payment method for illicit black markets, such as the Silk Road, an online marketplace for illegal weapons and drugs.
3. Minimal transaction fees
Currently there are fairly low fees associated with bitcoin payments. Bitcoin exchanges may offer a variety of services whereby fees vary depending on the type of transaction, but generally speaking these fees tend to be lower than credit cards or PayPal.
4. Reduced risk for merchants
Since bitcoin transactions cannot be reversed, do not carry with them any personal information, and are secure, merchants are better protected from any losses that might occur from fraudulent credit card use.
5. It’s a true global currency
Bitcoin’s value is the same worldwide and it can be used in any country. No one country can overinflate the value or devalue it, for instance, by making more.
Should you invest in bitcoin?
Since its inception, Bitcoin has had its ups and downs, but nothing quite like what’s happening right now. At the time this article was written, one bitcoin was worth $25,000 CAD. But before you jump onto the bitcoin bandwagon, consider a few of the pros and cons of investing in bitcoin:
- Bitcoin is no longer just for computer geeks and libertarians. A growing number of mainstream investors and entrepreneurs now see bitcoin as a legitimate asset class, similar to stocks, bonds, or commodities.
- A finite supply of bitcoin could continue to drive value. It is thought that nearly 80% of all bitcoins have already been discovered and, as mentioned, no new ones will be available after 2140. In addition, some are predicting demand to increase particularly if central banks decide to start buying them as foreign currency reserves.
- Bitcoin’s uptake as a mainstream payment system has been slow (except among criminal entities). To date, there is still little evidence that bitcoin will replace cash or credit cards anytime soon. Transactions are relatively slow (10 minutes in some cases) and fees are steadily increasing.
- The bitcoin bubble could burst. Over the last decade, bitcoin has been volatile with some fairly dramatic crashes, notably in 2013 and 2015. Also, experts contend that this latest exponential price increase is unsustainable and once prices drop, many buyers will exit the market.