Benefits of paying with cryptocurrency
Why the need for bitcoin in the first place, if there are already so many traditional means of making payments? A key element of bitcoin is its decentralized status, meaning that it is not controlled or regulated by any central authority. This immediately distinguishes it from fiat currencies. Bitcoin payments are processed through a private network of computers linked through a shared ledger. Each transaction is simultaneously recorded in a “blockchain” on each computer that updates and informs all accounts. The blockchain serves as a distributed ledger and obviates the need for any central authority to maintain such records.
Bitcoins are not issued by a central bank or government system like fiat currencies. Rather, bitcoins are either “mined” by a computer through a process of solving increasingly complex mathematical algorithms in order to verify transaction blocks to be added to the blockchain, or they are purchased with standard national money currencies and placed into a “bitcoin wallet” that is accessed most commonly through a smartphone or computer.
El Salvador made Bitcoin legal tender on June 9, 2021.2 It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it. The U.S. dollar continues to be El Salvador’s primary currency.
Benefits of Bitcoin
Now that we have seen a brief overview of what bitcoin is, we can better understand how this leading cryptocurrency provides potential benefits to its users.
The primary draw of bitcoin for many users, and indeed one of the central tenets of cryptocurrencies more generally, is autonomy. Digital currencies allow users more autonomy over their own money than fiat currencies do, at least in theory. Users are able to control how they spend their money without dealing with an intermediary authority like a bank or government.
Bitcoin purchases are discreet. Unless a user voluntarily publishes his Bitcoin transactions, his purchases are never associated with his personal identity, much like cash-only purchases, and cannot easily be traced back to him. In fact, the anonymous bitcoin address that is generated for user purchases changes with each transaction. This is not to say that bitcoin transactions are truly anonymous or entirely untraceable, but they are much less readily linked to personal identity than some traditional forms of payment.
The bitcoin payment system is purely peer-to-peer, meaning that users are able to send and receive payments to or from anyone on the network around the world without requiring approval from any external source or authority.
While it is considered standard among cryptocurrency exchanges to charge so-called “maker” and “taker” fees, as well as occasional deposit and withdrawal fees, bitcoin users are not subject to the litany of traditional banking fees associated with fiat currencies. This means no account maintenance or minimum balance fees, no overdraft charges and no returned deposit fees, among many others.
Standard wire transfers and foreign purchases typically involve fees and exchange costs. Since bitcoin transactions have no intermediary institutions or government involvement, the costs of transacting are kept very low. This can be a major advantage for travelers. Additionally, any transfer in bitcoins happens very quickly, eliminating the inconvenience of typical authorization requirements and wait periods.
Like with many online payment systems, bitcoin users can pay for their coins anywhere they have Internet access. This means that purchasers never have to travel to a bank or a store to buy a product. However, unlike online payments made with U.S. bank accounts or credit cards, personal information is not necessary to complete any transaction.
Because users are able to send and receive bitcoins with only a smartphone or computer, bitcoin is theoretically available to populations of users without access to traditional banking systems, credit cards and other methods of payment.
Cryptocurrency is a new payment method based on blockchain technology.
By means of smart cryptography or encryption unique and divisible digital currencies are created.
The transaction costs of cryptocurrencies are low and payments can take place almost immediately and worldwide.
Cryptocurrencies can be stored in a digital wallet (wallet) that you can manage from your computer, your phone or that you can store in a hardware wallet (a kind of USB stick). This can be done with the Ledger Nano S.
This hardware wallet offers the possibility to take your cryptocurrencies nywhere.
An alternative is to store your cryptocurrency on a credit card. The company TenX is developing this.
As long as you know the password / passphrase of your digital wallet, the crypto coins are completely under your management and ownership and no one else can use it.
This is in contrast to the money you put on a bankaccount, which from a legal point of view is no longer yours. When you deposit money into your bank account, you become a creditor of the bank, that manages your money on your behalf.
In transactions that you carry out with ‘your money’, the bank acts as an intermediary between you and a third party. In regard to these transactions, you trust that the bank will perform the transfer as you intended.
It works differently with cryptocurrencies. You immediately do business with other people without the intervention of a bank or third party. Transactions with cryptocurrencies are peer-to-peer transactions or transactions from people to people.
Approximately 2 billion people worldwide do not have access to a bank account. Many of these people do have a mobile phone.
Crytocurrencies and blockchain technology make it possible for these people to carry out financial transactions via biometrics and a mobile phone and thus increase their prosperity.
The trust for a transaction with cryptocurrencies is not derived from an institution as a bank but from the computer code of the specific cryptocurrency. A frequently heard term in the crypto world is therefore: “trust the code”.
Confidence in the code is greater as more people use the specific blockchain and / or more security guarantees or better encryption are built into the code.
Sometimes the duration or history of a blockchain is also a guarantee of the trust that users derive from the blockchain.
In order to be able to execute transactions through a bank, you are obliged to provide extensive personal information. For payments with cryptocurrency you do not have to provide personal data and the transactions take place anonymously.
The degree of privacy and anonymity varies from cryptocurrency to cryptocurrency. For example, the crypto coins Monero, Dash, CloakCoin and Verge are known for their focus on privacy.
Each transaction within the blockchain is verified by a decentralized network of devices (called nodes), stamped on time and linked to the previous transaction, creating a chronological series of transactions.
The register of these successive and irreversible transactions (also called the blockchain) is continuously synchronized and updated on all devices participating in the blockchain network.
This makes it impossible that a third party manipulates the payment or the sender reverses the payment.
Everyone can also continuously verify whether or not a transaction has taken place.
These transactions can be followed anonymously by everyone via the so-called block explorer.
For example, the global bitcoin transactions can be found here: https://www.blockchain.com/explorer
Within your crypto wallet you can create as many account numbers or addresses as you want.
This can be useful when you decide not to have too much crypto in your pocket.
Suppose you have € 1,000 worth of Bitcoin. You can leave this at one bitcoin address, but if you want to pay with your mobile phone, it is useful to use an app on your mobile to create a separate bitcoin address or account number to which you transfer € 100 for example.
Then you can spend up to € 100 on Bitcoin via your mobile phone.
ou can also make your own account numbers for i.e. fixed expenses, groceries, holidays or for the children.
In short, with cryptocurrencies you are your own banker.
Normally thousands of devices (or nodes) participate in the blockchain, so it is not a problem when one or more devices / servers (temporarily) disappear from the network.
Due to this decentralized nature of the blockchain network, it is virtually impossible for a central authority to intervene with or suspend a blockchain project.
The blockchain register can therefore be regarded as a type of DNA in which a single server / node contains the entire blockchain.
This is somewhat comparable to our human body, where the DNA of each cell carries the blueprint of the entire body.
Ok, so we have new technology where we can perform transactions of value between each other without the intervention of a bank, that are unique, irreversible and verifiable. But there’s more….
Blockchain technology makes it possible to digitize virtually every 3D object or service and to put its value in the blockchain.
For example, shares, cars or houses can be placed in the blockchain and traded via automatic contracts (smart contracts).
As a result, the intervention of third parties such as banks, notaries and advisors is no longer nessary and transactions can take place faster and cheaper.
The same applies to services such as loans, insurances or the tracking of goods.
This may be desirable, for example, to trace the origins and treatments of our food.
You can also manage your personal identity safely in the blockchain and use it for example when purchasing airline tickets, traveling by public transport, checking in at a hotel, verifying the age when purchasing alcohol, etc.
Finally, smart contracts can be used to fully automate government tasks, for example when collecting taxes, issuing permits, paying subsidies and when holding local, regional or national elections.
The advantage of the use of blockchain technology by the government is that all transactions can be followed via the blockchain.
So everyone can see exactly what goes in and what comes out.
As a result, the government apparatus can become a lot more transparent.
In 1944, during the Bretton Woods conference, the American dollar was appointed world reserve currency.
The dollar would be “as good as gold” because it would be backed by gold at all times.
Because America needed a lot of money in the 1960s to finance the Vietnam War, the moneypress was turned on.
As a result, the gold price could no longer be kept artificially low.
In 1971 the situation became untenable and US President Nixon decided to temporarily let go of the gold backing of the dollar.
That temporary decoupling of the backing of the dollar by gold still continues today.
Since 1971, the money presses are operating at full speed and the money (that is created out of nothing) is being used by governments for, among other things, financing wars, surveillance / intelligence programs and black projects.
Also the money supply in the form of central bank reserves has more than doubled since the financial crisis of 2008 (FED from 870 billion USD in 2008 to 4,500 billion USD in 2015 and ECB from 2,000 billion EUR in 2008 to 4,500 billion EUR in 2017).
This growth in the money supply can not continue indefinitely. More so because FIAT money is not materially backed by anything than trust.
An unbridled growth of FIAT money will ultimately erode our prosperity.
Cryptocurrencies are a possible solution for this. It is decentralized money, which is covered by blockchain technology and by a growing global community. Moreover, the money supply within crypto is often maximized (there are and will be a maximum of 21 million Bitcoins only).
Crypto currencies provide a technical solution to problems with privacy, the unbanked, international payments, high transaction and service costs, bureaucracy and electoral fraud. Blockchain technology eliminates the intermediary (middleman) and allows people to do business directly, globally and in a cheap way.