Many people have become fascinated by Bitcoin over the past few years, but there are still plenty of individuals out there who don’t get the big picture. There are some people who have become devout Bitcoin evangelists after hearing about the world’s first successful cryptocurrency, while others see it as nothing more than “nerd money”. So what’s the big deal? Let’s take a look at some of the core advantages to using Bitcoin for payments.
Be Your Own Bank
One of the main advantages that people talk about when it comes to Bitcoin is the fact that this technology allows you to be your own bank. You can literally have a “bank in your pocket” by way of a smartphone. This means that the bank is open 24/7, and you never have to ask permission to make a transaction of any kind. It also makes it easier to transfer money to anyone else in the world because it’s extremely simple for anyone else to create their own Bitcoin “bank account” as long as they have a computer with access to the Internet. You also don’t have to worry about a bank selling your transaction history to someone else because there is no third party who is keeping track of all your deposits and withdrawals.
Increased Financial Privacy
Keeping your transaction history private brings us to the next advantage of Bitcoin, which is improved financial privacy. Before Bitcoin, all digital transactions were traceable due to the nature of traditional financial systems. Whether you use a credit card, debit card, or PayPal, there is always a centralized third party payment processor who knows everything you are doing with your money. Not only do the payment processing companies have access to your account balances and transaction history, but a government can also easily request that information from the centralized company. With Bitcoin, it is possible to remain anonymous, as long as the correct precautions are taken. It should become easier to attain near-complete financial privacy in the near future after new, privacy-enhancing features are added to the Bitcoin protocol.
Low Transaction Costs
One of the advantages of Bitcoin that has already started to disrupt certain industries is the low cost of transferring money from one user to another. International remittances are an area of finance where the average cost of the transaction is roughly 10% of the total amount. With Bitcoin, these transactions can currently be made for a flat rate of $0.05. They can even be lower in situations where old bitcoins are being used because those bitcoins take priority over new bitcoins.
Low transaction costs are also important for merchants because it allows them to remove the fees they pay to companies such as Visa and PayPal. Some online businesses see profit margins of one or two percent due to the high volume of products purchased on their sites, and the fact that Bitcoin can remove the 2-3% discount rate charged for accepting credit cards means that profits on Bitcoin transactions can be doubled or tripled.
Another aspect of Bitcoin that merchants love is the fact that there are no chargebacks. Some businesses have entire departments devoted to fraud prevention, and the fact of the matter is that credit card fraud costs US businesses more than $10 billion per year. Although the fees associated with accepting credit cards are usually around 2.5%, the reality is the real cost per transaction can get up to 7% when you factor in the threat of chargebacks. There are many online businesses where accepting credit cards would be practically impossible, such as precious metals dealers, but they can now accept cheap, fast online payments thanks to Bitcoin. Removing the threat of chargebacks creates a situation where the online payments that merchants receive are as good as cash.
One last thing to think about when it comes to the advantages of Bitcoin is monetary transparency. Central banks are generally not transparent when it comes to the amount of new money that is being created on a yearly basis, which seems rather insane when compared with Bitcoin. Countries such as Venezuela and Argentina have had serious issues with inflation over the past year or so, and Bitcoin can be used as a safe haven in these countries where there is general instability. Many people in these countries usually turn to US dollars and euros on the black market to avoid high rates of inflation, but the issue with that is you cannot use those dollars or euros on the Internet. For some people, holding the private key to a Bitcoin address with some bitcoins will make more sense than turning to physical cash.
The rate at which new bitcoins are created is completely transparent, and this gets to one of the most important points when it comes to Bitcoin. There are currently many financial systems that require third party trust in the world today. The customers of these financial institutions basically have to trust the bankers, stock brokers, and other financial professionals to do the right thing with their money. They have to trust these institutions to be honest and not do anything evil. With Bitcoin, it’s impossible to be evil. Bitcoin removes the requirement of trust from the financial system.