March 6, 2013

5 Benefits of bitcoins

Don’t get me wrong…there is downside too. But this is something I am currently exploring, and I have uncovered a few key benefits to using Bitcoins:

1. Bitcoins are a decentralized currency. The currency is not tied to a specific country or central bank. Therefore, it is a true global currency that can be used to facilitate international trade without the friction caused by the FX market.

2. Bitcoins don’t change in value based on the monetary policy or trade performance of a specific country. This makes Bitcoins more of a global commodity priced by a global market.

3. Bitcoins are part of a global network. The success or failure of traditional currencies depends on the success or failure of a particular government or central bank. Since Bitcoins are part of a global network of users, Bitcoins theoretically have fewer failure points making it more robust than most currencies.

4. Bitcoins cut out the middleman. Payment is made from peer-to-peer instead of through an intermediary payment system, like Paypal or Visa. As a result, many fees can be eliminated from many payments. This also makes it harder to track the usage of Bitcoins.

5. Bitcoins are locally stored. This means that someone that owns X amount of Bitcoins personally holds them, like cash in a wallet. They aren’t stored in a Paypal account or in a bank vault (or more likely in a bank’s database). This means that counterparty risk is eliminated (although it is very low with most banks, especially because deposits are insured by many governments) and accounts cannot be frozen. Perhaps more importantly, this makes Bitcoin ownership more anonymous. Also, all the fees accumulated within traditional bank accounts are no longer an issue.