Bitcoin is a form of Internet currency that was invented by a person or persons with the alias, Statoshi Nakamoto in 2009. Bitcoin is controlled by a network of users, no one entity, and has developed into a form of currency that is used on the Internet as a means of payment for goods and services without control by banks or government agencies. There are many other crypto-currencies such at Dogecoin, Ethereum, Cardano, USD Coin, Terra, etc., but Bitcoin was the first and most widely known. A crypto-currency is internet money that is secured by cryptography, making it very difficult to counterfeit.
To get a Bitcoin you either have to mine it or get it through a broker. Bitcoin mining is a computational process of solving puzzles. The first miner to solve a particular puzzle is rewarded with Bitcoin. In the early days, one could use a desktop computer to solve the puzzle and be rewarded with Bitcoin. Now, with the high value assigned to a Bitcoin (around $45,000), the mining has become very sophisticated with dedicated super computers costing thousands of dollars and large groups of miners participating. The puzzles have become more complex and the amount of Bitcoin rewarded is reduced. In a nutshell, it is now impractical for a single person to mine and get Bitcoin unless this person joins a group of miners (mining pool) and shares in the rewards.
A more practical way to obtain Bitcoin is to purchase it through a crypto-currency exchange using recognized currency such as dollars. If you do this, you must get a Bitcoin wallet for your Bitcoin. There are two types, a hot wallet and a cold wallet. A hot wallet is connected to the internet and is always available for Bitcoin transactions, although less secure than a cold wallet. A cold wallet is some physical device that stores the Bitcoin, such as a jump drive, that is only connected to the Internet when a transaction is desired, which is more secure, but less convenient to use.
So what are the advantages and disadvantages in using Bitcoin? Let’s start with the advantages of Bitcoin. Transactions are anonymous and not trackable in the same way that bank related transactions are. You, as the buyer, send payment directly to the seller, regardless of the amount. One can use Bitcoin as payment to anyone in the world without restriction. The fees are very low or no fee at all for most transactions. If a person wants the transaction to occur at a high speed, there is an additional minimal fee. Government can’t tax Bitcoin transactions (as of now) since the government has no control over Bitcoin, other than banning it. However, the IRS is now requiring that you disclose the amount you spend on crypto-currency trades which means taxes are inevitable. Your personal information is secure and not divulged, unlike that in credit card transactions. Bitcoin is inflation proof. As the government increases its debt, it merely prints more money, resulting in inflation. The upper limit on Bitcoin is 21 million Bitcoins, which is well known. This limitation suggests that after this level of Bitcoin is reached, there are no more Bitcoins and inflation should not occur. Currently about 2 million Bitcoins have been mined.
On the flip side, there are disadvantages. Many are not familiar with Bitcoin, which limits the market for Bitcoin transactions. As of 2020 approximately 36 percent of small and medium size businesses accept Bitcoin. Bitcoin price is volatile and is considered risky. Consequently, many investors avoid investing in Bitcoin. The government could dictate that Bitcoin companies and wallets be shut down, making access to wallets difficult. There is a possibility that major speculators may end up owning a significant number of Bitcoin, which may hinder the activities of a free market. If you lose your Bitcoin wallet or password, you are out of luck. There is no credit card company, FDIC or bank to call to bail you out. One person’s hot wallet got hacked and he lost all his Bitcoin.
Bitcoin appears to be increasing in usage. Some sell and buy homes using Bitcoin. It appears that Bitcoin may be developing into a currency of the future.