With my first Banking experience dating back to 1995, upon Cirrus ATM network introduction, I see that Bitcoin, like mobile payments and cash withdrawal from ATMs by smartphones, is paving the way to a new era in monetary transactions.
While every country has its own currency, Bitcoin cryptocurrency was created in 2009 and was not tied to any country. Using peer to peer system, individuals can buy and sell Bitcoin online, or through ATMs. Payments can be made using debit cards, connected bank accounts, or credit cards. Unlike centralized banking or electronic money, Bitcoin’s transactions take place without an intermediary, which makes it the first decentralized cryptocurrency. The transactions are verified and approved by Bitcoin miners who use special computer systems and solve mathematical problems to generate new Bitcoins. The miners get fees twice, when generating bitcoin and when verifying and approving a transaction. The owner of Bitcoins needs to have a private key to spend them, and the buyer needs to provide a different Bitcoin address at every new Bitcoins purchase. The Bitcoin wallet should be stored in a secure location.
Although there are other cryptocurrencies, Bitcoin has gained more traction for being universal (no restriction based on ethnicity, nationality, location,..), having low fees (resistant to interference from third parties since it is decentralized), and allowing its irreversible finalized transactions to be seen by everyone. As a result, through time, Bitcoin has become accepted by many merchants around the world as a payment method. Bitcoin does have cons, among them value fluctuation, risk of wallet loss, and hacking. The value of Bitcoin may be determined by different factors such as Miners production cost, Speculation, and usability.
Chart link (Bitcoin price history)
The anonymity of Bitcoin transactions is one of the reasons governments have not been comfortable embracing it. Money laundering and other illegal activities can take place through this decentralized peer to peer virtual money system. Legal authorities cannot arrest a Bitcoin or a transaction. Regulators prefer a payment system that can trace transactions, verify who executed the transactions, and know the source of funds. In the USA for example, an online link was created to register complaints by the public about Bitcoin transactions. However, no complaints were received, from which one may conclude that the people who undertook the transactions were savvy enough to be on the safe side, away from major financial losses. The Bitcoin legal status around the world varies from country to country. In the US, Bitcoin remains unregulated. However, on September 20, 2016, a federal judge ruled that Bitcoins are funds.
Before appraising Bitcoin prospects, it is worth mentioning Blockchain, the underlying distributed ledger technology behind Bitcoin. Financial institutions and other industries are examining the possible use cases of Blockchain to streamline their processes and reduce costs. With regard to Bitcoin, once it gains mass adoption, gets regulated, and becomes more secure from hacking, it may get more attention on its possible use cases. The more countries become friendly to Bitcoin and digital currency in general, the more adoption it gains, and the less volatile it gets. Accepting Bitcoin deposits in Digital banks, and enabling brokerage house users to fund their investments and trading account with Bitcoin, are indications of gradual Bitcoin adoption. Bitcoin could also play a role in financial inclusion by allowing people who do not have bank accounts to receive money, whether it is money transfer or in exchange for goods. The digital currency ecosystem is gaining momentum opening the possibilities for a better financially, economically, and culturally connected world.