Cryptocurrency is digital currency that uses cryptography to secure its transactions. It is difficult to make counterfeit crypto currency because of this security feature. A remarkable feature of any cryptocurrency, is the fact that it is not issued by any central bank or government authority, making it immune to any government manipulation.
There are over 17 million bitcoins in circulation as of May 2018, with a total market capitalization of over $140 billion. Bitcoin’s success has given rise to a number of similar cryptocurrencies called altcoins: Namecoin, Litecoin, PPCoin, etc.
Pros and Cons of Cryptocurrencies
Cryptocurrencies make it possible to transfer funds between parties and these transfers are effected through the use of public and private keys as a means of security. These fund transfers are carried out with nominal or zero processing fees, allowing users to avoid the exorbitant fees charged by most banks and other financial intermediaries for the transfers.
Apart from the fact that prices of cryptocurrencies are based on supply and demand, it has been found that the exchange rates of cryptocurrency fluctuate widely due to a host of reasons.
The anonymous feature of cryptocurrency transactions renders them vulnerable to illegal transactions, such as money laundering, drug and weapons dealing, terror funding and tax evasion by criminals. However, anonymity of transactions has its own host of plus points. Cryptocurrencies are also considered by some economists to be a passing phenomenon or a speculative bubble that can burst any moment because of their virtual or digital nature. Bitcoin has indeed seen some exponential surges and sudden collapses in value.
Cryptocurrencies are also not totally secure from hacking. In Bitcoin’s short life-span, the currency has been subject to over 40 hackings, including few that topped $1 million in value. Still, many see cryptocurrencies with hope as a medium of exchange that preserves value, facilitates easy exchange, is more liquid and portable than bullion, and is outside the purview of central banks and governments.
Through many of their unique properties, cryptocurrencies allow exciting applications that could not be provided by any traditional payment systems.
There is no physical cryptocurrency, but balances are secured with public and private keys. These balances are maintained on public ledgers, along with all transactions, that are verified by a huge amount of computing power.
In early 2014, the Inland Revenue Service of the US declared that all crypto-currencies, including Bitcoin, would be taxed as property rather than currency. It was stated that all gains or losses from such currencies held as capital will be treated as capital gains or losses, while those held as inventory will attract ordinary gains or losses.
Bitcoin – Features
We have seen that bitcoins are becoming more and more popular and their usage is increasing at accelerated pace geographically. We will understand this process if we study different useful features of bitcoin that make them what they are.
Features of bitcoins
One of the most direct benefits of Bitcoins is that they are out of purview of governments, banks and other intermediaries who cannot interrupt user transactions or freeze Bitcoin accounts. The users experience greater freedom vis-à-vis dealing in national currencies. There cannot be inflation in case of bitcoins by printing more money as in the case of fiat currencies. By design, the number of bitcoins that can be minted is limited.
Since there is no way to identify, track or intercept bitcoin transactions, one of the major advantages of bitcoin usage is that taxes are not added onto any purchases.
Bitcoin transactions are relatively faster as compared to bank transfers in traditional currencies. Bitcoin transactions are done with nominal or sometimes zero transaction charges. These transactions are anonymous with no names involved. Every transaction is a public record which anyone can see. Your private key is the only link between you and your bitcoins. As long as the private key is secure, your money is safe. It is very easy to send and receive bitcoins because of ease of operation of bitcoin accounts.
Small amounts of bitcoin that are used as alternative units are: millibitcoin (1 mBTC = 0.001 BTC), and satoshi (1 sat =0.000001 BTC) which is a millionth of a biticoin in value.
You can use different wallets and tools for transacting in bitcoins.
Drawbacks of bitcoins
Let us examine the cons or drawbacks of bitcoins. These limitations of bitcoins make them less attractive and makes us seek better options. We have to somehow overcome or eliminate these limitations of bitcoins to make them user friendly.
- Bitcoins are a new emerging currency whose work is still in progress.
- Their value is highly volatile and unstable seeing wild fluctuations.
- It is internet-based, without which it cannot function.
- It is totally virtual currency and money can be lost due to computer breakdown or the absence or failure of a backup.
- Losing your private key can result in losing your bitcoins.
- There is no way that the transactions can be reversed or cancelled once completed.
- There can be misuse of anonymity of bitcoin transactions for criminal activities.
- The benefits of bitcoins are skewed highly in favor of early adopters.
- Bitcoin can be replaced with a better similar product and there is uncertainty regarding its continuation over a long period of time.
- Governments can ban bitcoins and make transactions in bitcoins difficult.
- The slowness of transaction verification is also an issue.
- The current version of bitcoins is not fit to handle very high volume of transactions.
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