Bitcoin – A Scam or Future of Currencies

Bitcoin is a cryptocurrency and a digital payment system invented by an unknown programmer. It uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. It is open-source; its design is public.

Pros –

• Bitcoin is open-source. Nobody owns it.
• Bitcoin utilizes block chain technology. The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
• Bitcoin has an “algorithm” which through some mechanism allows bitcoins to be “mined”. Essentially it randomly allocates bitcoins to early adopters. This is a very good system for early adopters (free money!).
• Bitcoins are not traceable if you mine them yourself or were given by a miner.Bitcoin is more resilient against government regulation because it has no central corporation.
• Transaction charge is minimum. Using the Bitcoin network is free, except for a voluntary fee in the form of payment system charge which is used to speed up transaction processing.For example, banks like American Express charge transaction fee to convert one currency to another currency, which can be somewhere around 1%-3% and taxes can be deducted on the received amount(10%- 30%).
• It is the best payment system ever designed. Bitcoin verifies transactions with the state-of-the-art encryption.
• The supply of bitcoins is algorithmically limited, which is again good for early adopters Only a limited number of bitcoins are available. As of now only 16 million bitcoins are available, however these are expected to reach 21 million by 2030. Limited bitcoins can save us from endless printing of the currency by central banks and thereby diluting the currency and making it worthless.
• It has no third-party risk. Countries like Japan, South Korea and Australia has already legalized bitcoin as a currency for their nationals.

Cons –

• Bitcoin is not designed to be a functioning currency. It is designed to enrich early adopters.  Around 950 members across the world own 6.5 million of bitcoin so they can pump and dump the bitcoin and manipulate with the bitcoin price.
• Bitcoin is never used directly to buy anything. The merchant receiving them will immediately turn them back into Dollars, Euros, or whatever local currency they need at a cost of roughly 1 percent.
• It is highly volatile and its value fluctuates 10% in a day very easily. As we have experience in the past few years, value of bitcoin can be thrashed to 80% -90% in matter of days by dumping in large quantities.
• It has no eccentric value as it is backed by nothing and Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and enables a user to send and receive bitcoins.
• Bitcoin is not very liquid as very big transactions cannot be carried out. For example – For a member to sell one million coin it is very difficult and hard to find a buyer.
• Unreliable bitcoin exchange security as the security of cryptocurrency exchange ecosystem isn’t some operators’ first priority. A rough estimate of the losses incurred by this industry over the past four years is on the order of 1.3 million Bitcoins, or hundreds of millions of U.S. dollars. For example – Bitfinex which is one of the world’s biggest Bitcoin exchange providers lost 119,756 Bitcoins, which is currently the equivalent of more than $72 million, as a result of a breach that took place in early August 2016. The attacker reportedly took advantage of a vulnerability in Bitfinex’ multi-signature system for signing Bitcoin withdrawal transactions. Other Bitcoin exchange providers which are hacked in the past are Mt. Gox, Bitcoinica, BitFloor, Bitstamp etc.
• Governments can shut down the exchanges to stop the conversion of bitcoin in to corresponding currencies.
• Nobody knows who has invented this technology so it could have been created by Intelligence agencies like CIA, foreign agencies which want people to accept digital currency as their future.
• Utilizing the open source of bitcoin, there are 44 similar kind of cryptocurrencies designed in the same pattern. For example – Litecoin, Ethereum etc. so there can be endless cryptocurrencies in the near future and the number can go up as high as 1000. Given this scenario, no currency will have enough value, they will lose value as money will shift from one cryptocurrency to another cryptocurrency and the main advantage of having limited number of bitcoins will be lost.

Conclusion –  It is gambling scheme for the people who want to make quick money. However if Bitcoin’s volatility can be contained and it is used as payment system then Bitcoin has the potential to become universal.