To even begin this debate, you have to understand what Bitcoin is. We’ve separated the learning scale a bit for the newbies to the bitcoin world, but if you’re already familiar with the Bitcoin, you can bypass our layman's terms description and go right to the Pros and Cons.

Bitcoin for Newbies: Bitcoin was invented by a guy using an alias in 2009, so we don’t really know the person or persons behind it. It is a group of computer programs that enable users to hold (in a virtual wallet) bitcoins, a virtual currency. The bitcoins are only real in the computer/electronic world. You can’t touch or hold a bitcoin. You can open an app on your phone that shows you a virtual wallet that holds your bitcoins, though. Isn’t that special?

These programs allow people to hold and trade bitcoins while keeping track of them. No banks or middlemen are needed, which means no fees and no regulations by the banking industry. Although the transactions are recorded, they are completely anonymous. They can also be hacked. A person can have as many user accounts as they feel like managing. A username can be real or anonymous. This anonymity makes Bitcoin extremely popular for buying drugs or other illicit activities.

Another attractive thing about Bitcoin is it isn’t regulated, so it can be, and is, used in several countries around the world with total anonymity and without regulations or restrictions. The user's transactions are completely private, which makes it a nightmare for government taxation and regulation. Right now, there isn’t any of either so it’s like the Wild West in the Bitcoin world.

People can use this virtual currency to pay for all kinds of things, like a Subway sandwich or a Dell computer. Although there are only a few large companies that accept Bitcoin currency, the list is growing. Bitcoins are definitely a lot more attractive to smaller companies, though. These little companies avoid the bank fees that credit cards charge and their transactions can be hidden with little effort. Of course, the small businesses that accept Bitcoins are considered hip because Bitcoins are a hip currency to use. People love a rebel. You can find a list of companies that accept Bitcoins here.

Oh, you can even “mine” bitcoins. You can use computers to solve complex math problems and earn yourself a few bitcoins for the trouble. Kind of fun if you like math.

So now that you’re caught up, please read on.

What is Bitcoin? Bitcoin is a worldwide cryptocurrency and a digital payment system that came into evolution as an open-source software. It is also the first centralized digital person-to-person cryptocurrency. Bitcoin is also considered to be a revolution in the present currency market. This currency is gaining huge recognition and mass adoption worldwide and countries that had banned Bitcoin initially are now looking to get it legalized.

Since its inception, Bitcoin was heavily criticized by most parts of the world and was perceived to be a scam as a result of its several negative factors. Today, however, it’s gaining popularity. The price of Bitcoin is soaring while the US Dollar is struggling. The experts who cried “scam” before are examining Bitcoin again and realize the power of this cryptocurrency. Has the recent acceptance from these old sectors changed or eliminated the negativities that surround Bitcoin as a currency? As many advantages that are attached to Bitcoin, it is important to note the disadvantages and take a good look at both sides.

Advantages: The Pros of Bitcoin

1. Anonymous and private:  Transactions are totally anonymous and private. Unlike other payment channels, such as the bank where transactions are tracked and identified, Bitcoin transactions can’t be identified. The only thing you know about Bitcoin transactions is the addresses on which the payment is sent and received. Whoever owns these addresses cannot be tracked. It’s just like paying into a particular bank account without knowing the account holder. It may be possible to track a Bitcoin account holder if the person uses the same Bitcoin address for a long time for every transaction, however.

2. Freedom of payment:  When you pay through Bitcoin, utmost freedom is guaranteed. Bitcoin can be sent to any individual in all parts of the world. There are no intermediaries in between. It is not affected by strikes, holidays, no payment limit, and no boundaries or borders.

3. Low or minimal fees:  When you pay through Bitcoin, the transaction fee is low and sometimes there are no transaction fees at all. All this depends on the priority of the person. If you want your transaction to get processed faster, you have to pay a transaction fee which is very low when compared to any other financial intermediary or digital wallets.

4. It’s fast:  Bitcoin transactions are super-fast when compared to banking channels. A Bitcoin transaction is as fast as sending an email and can be fully processed within 10 minutes. Transactions can literally be processed instantly if the seller doesn’t mind taking the risk of accepting a transaction that has not been confirmed by the Bitcoin blockchain. Waiting for that confirmation only takes about ten minutes. Instantly approved transaction services are also being provided on digital wallet or credit card companies right now but the fees charged by those providers are hefty. Bitcoin doesn’t charge those fees on either instantaneous or confirmed transactions. Retailers like that.

5. Minimal risks for merchants:  Bitcoin transactions are secure, irreversible, and have nothing to do with any sensitive or personal information. This definitely protects merchants from losses that happen as a result of fraud or fraudulent chargebacks. That alone makes a small business owner smile. Those fees and returned charges can be a nightmare, especially around the holidays.

6. Your payment information is secure:  So far, this is the greatest advantage that Bitcoin has for the consumer. Most online purchases happening today are made via credit cards and debit cards, which require you to fill in your personal information, i.e. the credit card number, the expiry date, and CSV number into a web form. This is how credit card numbers and information are stolen because that information often passes unsecured or with limited security. But Bitcoin transactions don’t require you to give any secret information away. Instead, they use two keys: a public key and a private key. The public key, as the name implies, is visible to everyone. This is your Bitcoin address. Your private key is a secret. When you send a Bitcoin, you confirm the transaction by combining your public and private keys together and then apply a mathematical function to them. This provides a certificate that confirms the transaction is from you. This makes it much more difficult to hack than credit cards, but not impossible.

Disadvantages: The Cons of Bitcoin

1. Hacking and Theft:  Bitcoins have been hacked and millions have been stolen several times. Over $4 million vanished in a Chinese exchange. $1 million disappeared in Denmark. There have even been thefts totaling over $100 million and a large company in Hong Kong lost $78 million. The system is not foolproof, but then again, neither are banks. However, even though debit and credit cards are probably at a greater risk of fraud, it’s fraud that can most likely be recovered. Bitcoin thefts are in the wind with little to no chance of recovery. The majority of Bitcoin hackers go after large accounts, but smaller thefts have occurred in the Czech Republic. There have even been robberies at gunpoint in New York. Because they’re virtual, you are at risk anywhere and not insured. Credit and Debit cards, even with the new chips, are stolen every day, but it’s most likely you’ll get your money back if it’s a legitimate theft. 

2. Acceptability:  Many businesses and consumers still do not know about Bitcoin. Each day, new businesses are added to the list of those who accept Bitcoin payments but the list is still small. It will need to grow if it is to have any network effects. Small businesses, however, can see an enormous amount of advantages when they do begin to accept Bitcoins because users are always looking to use their virtual currency.

3. Volatility:  The prices are very volatile. Did I write very volatile? I meant extremely volatile. Bitcoins have been known to increases and decrease quickly and within a very small time frame. Nothing but a consumer-based belief system is driving the price. Speculators attempt to take advantage of the quick rise and falls, but people who are genuine investors see it as too risky. Therefore, very few real investors invest in Bitcoins. It just isn’t real and therefore nearly impossible to predict.

4. It lacks alternatives:  If you lose the virtual wallet that has your bitcoins in it, you can’t get it back and they are simply lost forever. Let’s say your computer crashes or your phone is stolen. There is no way to look up your account because there’s no real account to look up. If your wallet disappears, so do your Bitcoins. However, if your debit or credit card is stolen, all you have to do is place a call to cancel the card and request a new card. Your card will be frozen and your account protected. Because no one has control over Bitcoins, they’re decentralized and completely at risk. There is no one to call.

5. Money laundering or black Market:  Bitcoin has been known to be used by people for money laundering and operating within the black market. These people do not want their personal information revealed. The payments are secure and their identities are well hidden. With Bitcoins, money laundering is easy. Intermediaries simply collect money from one source and transfer it to another source using Bitcoins.

There were unconfirmed reports that Facebook was planning to introduce Bitcoin to its users. Facebook was interested in and now does provide banking and person-to-person money transfers for its members. If they eventually added Bitcoin, it would probably give Bitcoin the one thing they need to make them feel legit. They would finally be accepted as a major form of internet payment.

As it stands now, Bitcoin is growing as a global currency, but it hasn’t yet achieved what the creators of Bitcoin had envisioned. It had an amazing run but settled down again. There is some doubt about its long-term presence, although it appears that it would only require one big corporation to send it over the top.  A corporate-backed Bitcoin-like company would have the potential of educating consumers and that is really what is needed. Bitcoin’s dream is to be accepted by a global giant like Facebook so it could become the world’s currency. For the moment, Bitcoin is used smoothly in the US and UK. As of April 1, this year, Japan recognized Bitcoin as an official mode of payment and implemented tax policies on it. Russia also announced that Bitcoin may be legalized this year.

What do we think? Investors I’ve talked to, and it’s my opinion as well, think that if you own a small business, it may be a smart move to get your name added to the list of vendors who accept Bitcoin payments. However, we would not recommend trading your own currency for Bitcoins yet and we would trade our Bitcoins for gold and silver as fast as we could earn it. The truth is, the bottom may not drop out of Bitcoin and it may be the wave of the future, but there’s really no way to predict which cryptocurrency or when it will become stable. It could drop out tomorrow. We just know that when it does crash, it will be hard and fast with no time to get out.  It’s not real, so it is only as strong as the belief of those using it.  A whisper, a rumor, could easily cause this house of cards to fall.  So, tread with caution.  Play with the house's money, meaning only let money ride in crypto that you earned in crypto...for now.

Michelle R Russell

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