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Payments February 14, 2014

Pros and Cons of Bitcoin

Bitcoin is quickly becoming one of the most debated topics in the finance world. For those out of the loop, Bitcoin is a digital currency, not a physical one like most people are used to. Your 'money' is kept in a digital wallet. This wallet can either be stored through the cloud or on a computer's hard drive. It is quite the concept to wrap your mind around, but to make things easier here is a breakdown of some of the usual statements at the heart of the Bitcoin controversy.

No more need for banks

Being a digital currency means Bitcoin has no ties to a government or country. Therefore there is no tax, transfer rates, or regulations to deal with making international transactions far more easy. However, being a digital and non affiliated currency means no FDIC. The FDIC is the Federal Deposit Insurance Corporation and is used in the US. They guarantee a certain payout if something were to go awry with the banks. These days that payout is usually $100,000 but in some specific cases that amount is raised to $250,000. There is no FDIC to ensure safety if Bitcoin is lost or stolen. And by the way yes, Bitcoin can be stolen.

Digital money is safe

Since Bitcoin is completely digitalized and there isn't a need for brick and mortar banks anymore, all accounts can be handled through a personal digital wallet. A digital wallet is great and all, but what happens when it is stored in the cloud. Hackers can attack it and steal Bitcoin just like a mugger would steal a woman's purse. A hard drive may seem like a safe alternative, but what happens if the computer crashes, or it simply falls and breaks? This brings up a serious question of safety involving an online currency like Bitcoin.

You can shop anonymously

Bitcoin has a public log of every transaction made, but the only information given out is a wallet id number. This number is not linked to any form of identity and allows for a completely incognito finance experience. The concept is great in practice, especially when the people using it have good intentions, but as many know the internet is full of people with the exact opposite of good intentions. Anonymous shopping means a potential rise of more illegal online purchases like drugs. Perhaps even a bigger online black market.

A currency not backed by gold

A currency backed by nothing but numbers and code may seem scary. Many user want currencies to be backed by something like gold, like the US dollar was. The key point here is 'like the US dollar WAS'. The dollar hasn't been backed by gold since the 1930s. It is built now entirely on the trust among people and their transactions. This kind of trust is what Bitcoin will need in order to succeed.

So take it for what its worth, Bitcoin is out there and is starting to be used by many legitimate companies. It is quite a revolutionary idea, but in reality not to far off from becoming prominent. The main issue to solve is safety. If Bitcoin can somehow implement an insurance or safety measure, it could easily takeover the online market place.

What do you feel are the biggest pros / cons to Bitcoin? Post your advice in the comments section below.

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