Welcome back to our series on everything bitcoin! This is the first post in a three-part series about bitcoin, covering the good, the bad, and the ugly. In this piece, we’ll look at the benefits and promises of bitcoin.
Bitcoin is a controversial subject. Like most things, it has its pros and cons. What are the best aspects of bitcoin?
Inflation, or the decline in the purchasing power of most currencies, is something we’re all unfortunately familiar with. Over time, the same amount of money tends to buy less and less. One of the reasons people are so excited about Bitcoin is because it is billed as a deflationary currency. With only 21 million coins in total, Bitcoin has a fixed liquidity cap. Once all the coins are mined, the lack of new supply theoretically means that the purchasing power of a given bitcoin will increase.
Bitcoin is inherently transparent due to the nature of the blockchain. Every transaction ever made, from the genesis block to now, is visible to the public. Since blockchain transactions are immutable, it’s possible to get a complete record of Bitcoin’s history, including all wallet addresses and the transactions they take part in. This is one of the reasons why laundering money via Bitcoin can be a huge pain, with criminals frequently getting busted when they try to cash out.
Move money across borders with ease, get around capital controls. Big hypothetical is if there’s a run on the bank and you can’t get money out. Popular in countries with unstable currencies. Gives you a degree of control from having spending habits analyzed, with loans that don’t impact credit scores with P2P lending. It’s when you try to convert Bitcoin into fiat that regulation comes down on you.
Bitcoin is frequently mischaracterized as being anonymous. This is what helped earn its colourful reputation as internet money for buying drugs and assassinations. While this is mostly sensational, Bitcoin has been used for certain purchases because it’s possible, with some work, to divorce your identity from your Bitcoin transactions.
Since Bitcoin is completely transparent, it’s possible to see where money is going, and often for what purposes if the destination wallet is identifiable. Bitcoin doesn’t offer total anonymity, but it’s more anonymous than a traditional bank.
Bitcoin was the first fully functional, widely adopted currency. Without Satoshi Nakamoto’s white paper, the crypto industry as we know it wouldn’t exist. Borderless, a way to send money across state borders. It disrupted the status quo and introduced blockchain technology to the world.
Bitcoin is itself fairly secure. Aside from one incident in 2010 that was quickly mitigated, Bitcoin has never been hacked. Bitcoin is decentralised, distributed over tens of thousands of nodes across the world. Even if one node is hacked, the network itself will keep running. One theoretical attack on the Bitcoin network is called a 51% attack. If someone gains control over more than half of the Bitcoin network’s computing power, or mining hash rate, they can prevent new, valid transactions from gaining confirmations, and gain the ability to double-spend coins.
One of the major protections against vulnerabilities like 51% attacks and fraudulent confirmations is the sheer scale of the Bitcoin network. Due to the protocol’s construction, miners are incentivized to keep working for the good of the network as a whole.
Let’s say you have money in an online banking service. One day, out of the blue, you’re locked out of your funds. You call customer service, send frantic emails, and even tweet at the company. No dice. Your money is inaccessible, and may as well be gone for all the good it’s doing you. This is a common complaint for users of services like PayPal and Venmo. With Bitcoin, the coins you have in your wallet (that you control the private keys for) are yours. You’re the only one responsible for them. Of course, this also means that if you fall victim to a scam, no one is going to help you. With great power comes great responsibility, as they say.
A fact that private companies and governments can interfere in digital fiat payments. Since Bitcoin is blockchain-based, it is decentralized by design. It would be extremely difficult for anyone to censor a transaction.
Entries into the Bitcoin blockchain are immutable — once they’re there, they can’t be changed or removed. Once a transaction has been added to the ledger, it’s nearly impossible to change or delete it. Not to mention bitcoin isn’t owned by a single entity. No state or entity can prevent someone from transacting on the Bitcoin blockchain.
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See you next time!