Bitcoin is called virtual currency, but a better term is cryptocurrency. Unlike physical money, there are no coins or paper money officially produced. No government entity decides how much and when to release it into the world. Bitcoins are created digitally by people as they solve complex math problems with their computers. In many senses, it is truly decentralized.
One of the interesting things about this virtual currency is that all transactions are stored and published publicly. The currency is traded via a vast peer-to-peer network that encompasses the entire globe. While there aren’t a lot of rules regarding Bitcoin, there are some, and this helps with making bitcoins a genuine currency that works like “normal money.”
Next, we’re going to take a look at some of the ways that Bitcoin is different than traditional currencies. It’s these differences that make Bitcoin such a powerful possibility. One of the main differences is that Bitcoin is decentralized. No one person, corporation or government controls the Bitcoin network. This isn’t the only difference, however, so let’s take a look at some things that are exclusive to Bitcoin.
Bitcoin vs. Conventional currencies
1. Bitcoin is Decentralized
Unlike traditional currency, which is controlled by a central authority – usually an arm of the government – Bitcoin is decentralized. Because it operates as a peer-to-peer network, all transactions and verification of transactions are done by various people in the network.
2. Bitcoin is Virtual Currency
The other thing that sets Bitcoin apart from traditional currency is the fact that it’s virtual. That is to say coins and paper money aren’t produced to represent the value. Instead, all bitcoins exist in virtual space. This means you can’t go to an ATM and withdraw physical money. Some people have created unofficial physical representations of bitcoins, but first and foremost, Bitcoin is virtual.
3. Bitcoin has Scarcity
Because only 21 million bitcoins will be created, BTC has scarcity, unlike traditional currency that can be printed when governments decide to print more. To spread out the creation of bitcoins being released into the world, the number that are created by “mining” will half every four years. This means that people will still be able to create them until the year 2140. At that time, no new bitcoins will be created and the existing stockpile will enjoy the benefits of scarcity – i.e. becoming more valuable.
5. Bitcoin transactions cannot be reversed
In order to preserve the block chain of all transactions in sequential order, Bitcoin transactions are not reversible. Additionally, a Bitcoin transaction can take ten minutes or more to confirm. This is different than other currencies that typically process transactions in seconds and also allow for reversing a charge to a credit or debit card.
6. Bitcoin is not Ubiquitous
Wherever you go in the world, you’re going to run into local currencies. In most places, you’ll be able to trade your country’s money for bills of the country you’re visiting. And no matter where you go in the world, you’re going to be able to trade your money for goods and services. Bitcoin hasn’t yet been embraced by the world at large. This may change in years to come as more businesses begin to accept Bitcoin for payment, but for now it’s a difference that matters to a lot of people.
Good and Bad of Bitcoin
As you can see from the points above, Bitcoin has a lot of positives and negatives attached to it currently. Because it’s decentralized and generally has low fees for transactions, many people are starting to take notice and get excited about this and other cryptocurrencies.
Another thing to note is that some people worry about who controls the Bitcoin network. The reality is that because it uses peer-to-peer technology, no one person or corporation can own the Bitcoin network. This may seem scary to some while it’s revolutionary and exciting to others.
The need for all versions of Bitcoin software to be compatible and be able to communicate with each other is paramount to Bitcoin’s success. Luckily, most people who are involved realize this and have worked together to improve the Bitcoin software and network considerably in just a few short years.
The fact that Bitcoin is different than anything else that was around when it first came out is both good and bad, but at the end of the day it makes Bitcoin unique and special. And this just might be what’s able to help Bitcoin grow even more quickly around the world. This may turn out to be the financial system that brings the world together.