Satoshi Nakamoto, Bitcoin’s inventor, envisaged Bitcoin (BTCUSD), as a means for daily transactions when it was first launched. A decentralized cryptocurrency is intended to remove centralized control from government agencies and speed up transaction processing.
More than a decade later, observers are questioning whether the cryptocurrency has failed to live up to that promise. Very few daily transactions are conducted using Bitcoin as a medium of exchange.1
The idea of an alternative currency that is not subject to the control of federal agencies and governments is very powerful. Recent developments in Bitcoin technology, such as Lightning Network, have the potential to return Bitcoin to its original promise. As the technology has improved, so have the number of places that accept Bitcoin. It is possible to buy many things with Bitcoin. 2
Bitcoin was created to give users unique advantages over other payment methods. These advantages will be discussed in more detail below. But before that, we should first explore Bitcoin as a cryptocurrency. It will be easier for you to understand Bitcoin’s design principles and see the benefits of using Bitcoin as a payment method.
KEY TAKEAWAYS
- Bitcoin transactions have many benefits. They are faster than transactions with fiat currencies and they come with lower transaction fees.
- International transfers are made possible by Bitcoin transactions.
- With technological advances such as the Lightning Network, Bitcoin payments are now possible.
- Bitcoin transactions are also possible for those who don’t have a bank account.
What is Bitcoin?
Bitcoin is a decentralized, peer-to-peer cryptocurrency system that processes transactions through digital units of exchange called bitcoin. The Bitcoin network was created in 2009. It has become a dominant and even defining cryptocurrency space. Some users consider it an alternative to traditional government currencies such as the U.S. Dollar or Euro, or pure commodity currencies such as gold and silver coins.
This is part of Bitcoin’s appeal to its followers. It is not controlled nor regulated by any central authority. This immediately distinguishes it from fiat currencies, which are issued by central banks and backed by the government. Fiat currencies can also be disbursed to an economy by institutions such as banks, which are subject to government regulations.
Bitcoin creation and withdrawal do not require government fiat. Bitcoin payments are made through a private network that is connected through a shared ledger. Each transaction is simultaneously recorded in a “blockchain” on each computer that updates and informs all accounts. Blockchain acts as a distributed ledger and eliminates the need to have such records maintained by any central authority.
Bitcoins are not issued or controlled by any central bank or government, unlike fiat currencies. Rather, bitcoins are either “mined” by a computer through a process of solving mathematical problems, or algorithms are used to verify transaction blocks to be added to the blockchain. Bitcoin can also be purchased with standard national money currencies and placed into a bitcoin wallet that is accessed most commonly through a smartphone or computer.
El Salvador declared bitcoin legal tender on June 9, 2021. 4 Any transaction that the business is able to accept bitcoin can be made with the cryptocurrency. El Salvador’s main currency is the U.S. Dollar.
Bitcoin has many benefits. We now have a better understanding of bitcoin’s potential benefits for its users.
Bitcoin allows for user autonomy
Multiple restrictions and risks are associated with conventional fiat currencies. Banks are susceptible to economic boom and bust cycles. These situations can sometimes lead to bank runs or crashes. This has happened many times before. Users are not in control of their own money. Bitcoin promises users autonomy, at least theoretically, since its price isn’t tied to any government policies. The cryptocurrency’s owners and users are in complete control of their money.
Bitcoin transactions can be done anonymously
Online transactions often require a variety of information to identify the person making the transaction. Transferring money from one person can only be done after both parties have verified their identifying information. Online purchases require that you also provide identifying information in order to complete a purchase. While the verification process can prevent crimes, it also puts an intermediary in control of the transaction. They have the ability to control the provision of services to selected parties.
Bitcoin transactions can be pseudonymous
Although they can still be identified by using a blockchain address, transactions are pseudonymous. A person can have multiple addresses just like they can have multiple usernames or passwords for one account. Internet Protocol (IP), addresses and other identifying information does not need to be provided in order to complete the transaction.
Bitcoin transactions are done on a peer to peer basis
Bitcoin payments are peer-to-peer. This means that anyone can send or receive money to and from any other user on the network. The parties to a transaction don’t need approval from any authority or source unless they are sending or receiving Bitcoin from a regulated exchange.
Bitcoin transactions are free from banking fees
While it is considered standard among fiat currency exchanges to charge so-called “maker” and “taker” fees, as well as occasional deposit and withdrawal fees, Bitcoin users are not subject to the litany of traditional banking fees associated with fiat currencies. There are no account maintenance fees or minimum balance fees, overdraft fees, returned deposit fees, and so forth.
International payments can be made with Bitcoin using low transaction fees
Standard wire transfers and foreign purchases typically involve fees and exchange costs. The costs for transacting Bitcoin transactions are typically lower than bank transfers because there is no government or intermediary institution. This is a huge advantage for travelers. This can be a major advantage for travelers.
Mobile Bitcoin payments
Bitcoin users can purchase their coins from any place they have internet access, just like other online payment systems. Buyers don’t have to go to a store or bank to purchase a product. However, unlike online payments made with U.S. bank accounts or credit cards, personal information is not necessary to complete any transaction.
Bitcoin transactions can’t be reversed
The blockchain of Bitcoin is immutable. Transactions made using the blockchain cannot be reversed and can not be modified by any third party such as a government agency or financial service agency. It is also impossible to charge back a bitcoin that was sent to another person. Reversing Bitcoin transactions can only be done by having the recipient return the original bitcoin.
Bitcoin transactions are safe
Bitcoin is not a physical currency. It is therefore impossible for thieves or to take bitcoin from the owner. If hackers have the wallet’s private keys, they can steal cryptocurrency. It is technically impossible to steal bitcoin with proper security. Although there have been reports of hackers at cryptocurrency exchanges in the past, Bitcoin’s exchange is still secure. Transactions between two addresses (or multiple addresses) are therefore secure.
Accessibility
Bitcoin can be sent and received with a smartphone or computer. This makes it theoretically accessible to large numbers of people who don’t have access to traditional banking systems and credit cards.
Bitcoin Payment FAQs
Can I make payments using Bitcoin?
Several online retailers, such as Overstock (OSTK), allow users to pay with Bitcoin. In recent times, small businesses and individuals have also begun using the cryptocurrency’s blockchain for overseas remittances.
What are the benefits of Bitcoin transactions?
Bitcoin transactions offer many advantages. The two biggest advantages to using Bitcoin for transactions are its peer-to-peer focus, which eliminates intermediaries, and its pseudonymous structure that eliminates the need to identify both parties. These characteristics speed up transactions and eliminate unnecessary steps.
Are transactions using Bitcoin completely free?
Bitcoin transactions are free from intermediaries and do not incur fees or charges for third-party intermediaries. To conduct transactions, however, users will need to pay Bitcoin’s network fees.
Are Bitcoin transactions required to open bank accounts?
Bitcoin transactions don’t require that users have bank accounts. To send or receive Bitcoin payments, all you need is an Internet connection and an associated address on the blockchain.