More people are beginning to explore the world of bitcoins. The main reason they are doing this is because they are a disruptive innovation that will change how the global financial market works forever. In order to understand why this disruption is happening, it is important to first understand how bitcoins work. Basically, it is a digital currency that cannot be exchanged like conventional money nor does it have any physical commodity that could be taken as payment. Instead, it is a peer-to-peer decentralized currency that is transmitted between user peers on the worldwide peer-to Peer computer network without the use of intermediary administrators or a central bank.
Transactions are technically verified by network nodes via cryptography and are stored in a public globally replicated ledger known as a block chain. Whenever you make a transaction, you are essentially sending information back to the network. You are basically saying to other nodes in the network that you wish to transfer money from your account based on some agreed upon parameters. Once the transaction is done, you can receive the funds and your account is closed.
Difficult to tamper with
One of the most appealing aspects of bitcoins is the fact that it is very difficult to tamper with. Unlike traditional money which can be printed at any time, bitcoins are only created when you have stored enough in your private key wallet. Transactions cannot be reversed in an instant and if the transaction was not done in your local area, you can be sure that nobody else in the world can have had access to your digital currency either. This makes bitcoins a very attractive investment in comparison to traditional currencies because the perceived value is almost infinitely correlated with the value of the actual transaction which makes them virtually immune to depreciation.
Benefits for international transactions
There are also many intangible benefits attached to bitcoins. For instance, bitcoins are a perfect form of money that is perfect for international transactions. They don’t have the same problems as traditional money of high exchange rates, fraud and expropriation. With transactions happening all across the globe, bitcoins offer an ideal way to transact and makes the transfer of money internationally very easy.
Low transactional costs
As mentioned above, there are many tangible and intangible benefits associated with the use of bitcoins. However, perhaps the most valuable of these is the low transactional costs associated with the system. The cost of running a full block of transactions is something that all monetary institutions face and the cost of running a single transaction can easily eat up one-tenth of your annual budget. However, with the use of bitcoins, you can run a full transaction for less than a cent per transaction. It is for this reason that many experts recommend the adoption of bitcoins as a mode of payment. Especially for online businesses, there are significant savings that come from the use of this digital currency.
In summary, bitcoins offer a number of advantages over traditional money. They are resistant to fraud, difficult to steal, and have a low transaction cost. While not entirely dependent on the US dollar, the current exchange rate against the British pound is still quite low when compared to the euro and US dollar. The adoption of bitcoins will hopefully result in its price becoming more favourable compared to other currencies.