Many people have started thinking that cryptocurrencies, Bitcoin in particular, are on the brink of replacing our national currencies such as the US Dollar, British Pound Sterling, Euro, Canadian Dollars, and more. This is because cryptocurrencies have started to become very viable alternatives to traditional currency. Cryptocurrencies exist to address weaknesses in traditional currencies which are, of course, backed by central banks and governments. This makes traditional currencies prone to corruption and manipulation, among a host of other issues.
Unlike traditional currencies, there is no governing body that backs Bitcoin and other cryptocurrencies which means they aren’t subjected to anybody’s whims.
Bitcoin is completely decentralized, open source and transparent. This means that you can see all the transactions that have ever been done on the network and you can check and review the blockchain data yourself to verify the authenticity of each transaction. Bitcoin runs on highly complex mathematical algorithms to regulate the creation of new bitcoins and to make sure no double spending ever occurs on the network (remember, this is the Achilles’ heel of failed virtual currencies before Bitcoin). The Bitcoin code is so secure and advanced that it’s virtually impossible to cheat the system so if you’re thinking you can create an unlimited number of bitcoins, you’re greatly mistaken.
One of the main problems of traditional currency is that these aren’t limited in number. This means that governments and central banks can print more money when they see fit. When more money is printed and enters the economy, this reduces the purchasing power of our paper money which means we need to spend more for an item we’ve only spent a few dollars on before; this is called inflation. Bitcoin, on the other hand, is a different story. The Bitcoin Protocol states that only 21,000,000 bitcoins can ever be mined and created which means that bitcoin is, in fact, a scarce resource.
Also, like national currencies, bitcoins are divisible, much like cents to a dollar. The smallest bitcoin unit is called a Satoshi, and it is 1/100,000,000 of a bitcoin. This means you can invest a few thousand Satoshis at a time until you finally get a whole bitcoin. Of course, if you go this route, it may take you some time to get to 1 BTC but if the price continues to skyrocket, then buying a few Satoshis regularly may pay off in the long term.
Another reason why cryptocurrencies are gaining in popularity is that it is highly portable which means you can bring it with you anywhere you go. You can do the same with physical money and gold. However, a large amount will lead to a heavy load on your wallet or bag. Try putting a million dollars in a briefcase or carrying a bag of gold! It’s certainly not as light as it looks in movies.
With cryptocurrency, you have different wallet choices, all of which are highly portable, so you can easily make payments whenever and wherever you want.
Bitcoins are not subject to bank and government regulations. This means you don’t need to pay those hefty bank fees which you incur whenever you send payments to other people. You also don’t need to wait several hours or maybe even a few days for your payments to clear or post as bitcoin payments are made almost instantly (usually in 10-45 minutes).
Next, I ask the question How Does Bitcoin Work?