We usually consider the money we use "a given". If you live in the United States, you use the US dollar. If you happen to live in the Eurozone, you use the euro. But perhaps there are advantages of using another currency, than the one you should use. Perhaps there's an advantage of using bitcoin in certain situations!
Not too long ago, one would have a bank account to store money, receive a salary and take out cash from an ATM to spend. In those days, a bank would not know what you were spending money on, other than taking it out of a machine from time to time. In today's world, most transactions happen electronically, where you pay in-store with a debit/credit card. Your bank knows exactly where you've been and what you've spent. If you don't feel comfortable with this idea, you may still use cash in the physical world. However, online it would be impossible without bitcoin to transact with the same amount of privacy that cash grants you.
Suppose you use bitcoin correctly, and make sure to use Samourai Whirlpool or Wasabi Wallet after buying your bitcoin on an exchange. In that case, you can transact privately on the Internet. Remember that every time you use your credit card online, there will be a permanent record of this purchase. While it may be okay to buy a particular item or service today, this might not be the case forever. Are you sure you want a record of everything you've ever purchased in a centralized database?
Censorship Resistance 👍
While we live in an age of global communication, certain past remnants are visible on the Internet. Suppose you are a political activist, and you support the causes which Wikileaks stand for, and you'd like to support them financially. Before bitcoin's existence, you'd be dependent on all the intermediaries between you and Wikileaks to send them money electronically (your bank, a payment service provider, and their bank). Any of these parties could block your transfer at a whim! In other words, you'd be at the mercy of what other people think you can or can't do with your own money!
With bitcoin, you control your own money, and you can send it to anyone you'd like around the world! Furthermore, traditional payment systems still exist in silos of a global Internet. Consider you'd like to watch a movie that is only available in American content stores. Using your credit card, you wouldn't be able to buy or rent the movie because your credit card is from a different country. Since bitcoin is borderless, you can buy an American gift card with bitcoin and watch the film with a bit of help of our friends at Bitrefill.
Unfortunately, most of human civilization has no access to banking services and is not part of the global economy on the Internet. It might be too difficult in remote places to open a bank account, or it is not attractive from a business point of view to serve people in developing countries. Or worse, a financial institution might not permit an individual to open a bank account.
Bitcoin knows none of these constraints because as long as you have access to a phone and the Internet, you can join and participate in the global bitcoin economy. Bitcoin knows no borders, jurisdictions, sanctions, people, or politics. You can send money to anyone, anywhere in the world!
With the emergency of new technology, there are not only advantages (privacy, censorship resistance, and accessibility), especially when it comes to money. At its core, money is merely a communication mechanism to transmit value from person A to B. In this section, we'll discuss four disadvantages of using bitcoin as this communication method.
Bitcoin has existed for a little over ten years. Its value went from practically zero in 2009 to roughly €50.000 per bitcoin in 2021, and even the daily exchange rate swings substantially. It is rather inconvenient if you'd like to pay somebody for his/her products and services while we are still in a transitional phase from fiat currency to bitcoin. Imagine a situation where you agree to pay somebody 100€ in bitcoin for a product. By the time the transaction happens, this bitcoin's value could now be worth 120€ or a mere €80, depending on bitcoin's volatility of the day.
This problem only exists for as long as we are in the transitional phase where bitcoin represents a minority of the financial system. The larger the bitcoin ecosystem gets, and the more people participate in it, the more stable its price will become.
While fiat currencies are widely accepted, and you can pay everywhere you'd like, this is not the case for bitcoin. It is rather exceptional one can pay with bitcoin in the physical world, while more and more stores on the Internet accept bitcoin as payment (including Elon Musk, who recently announced you could buy a Tesla in the US with bitcoin). Thus, a significant disadvantage of using bitcoin is searching where one could actively spend their bitcoin.
Perhaps the most significant disadvantage of using bitcoin (and at the same time advantage!) is the level of self-responsibility with bitcoin. You might be used to having your bank safe keep your money and giving you the ability to spend it wherever you want with a debit/credit card; this does not hold for bitcoin.
Your responsibility is to keep a good backup of your money and your duty to prevent unauthorized access to your wallet—both a task which we outsource to banks when it comes to fiat currency. While most will either take this seriously or learn the hard way, it may indeed be a disadvantage for using bitcoin as it means extra worries in your life! Then again, it also provides you with the ultimate feeling of financial freedom!
More Bitcoin 101
We hope you’ve enjoyed our sixth blog post in the series “Bitcoin 101 - What is bitcoin?”. If you want to know more about the bitcoin mining process, stay tuned for the next blog post! We’ll be publishing one blog post every week answering many of the questions we’ve heard from our Stekking users who are new to bitcoin:
- What is bitcoin?
- How and where can I buy bitcoin?
- How and where can I use bitcoin?
- Where should I keep my bitcoin stored safely?
- How does a bitcoin transaction work?
- How does bitcoin mining work?
- What are the advantages and disadvantages of using bitcoin?
- What is a blockchain and how does it work?
- How does bitcoin compare to other cryptocurrencies?
- Why should I want to have bitcoin?