Bitcoin, the world’s first cryptocurrency, is still among the most discussed things. Introduced about a decade ago, it hit a new high in the last quarter of 2017 when it inched towards $20,000.
A year later, the prices may be a bit down to around $4,000 but investors and experts have not lost hope in Bitcoin as they expect it to hit back soon with many predicting a value of $50,000 in the next five years.
Let’s get to know more about Bitcoin including its use cases:
Bitcoin Use Cases
The major aim of introducing Bitcoin was to reduce the dependency on cash. With countries going cashless, people are looking for other ways to pay, which is why the interest in Bitcoin and other currencies is increasing since they’re used to transfer money or value from one person to another.
While we are far from a world where Bitcoin becomes the main method of payment, there’s no denying the fact that it has grown by leaps and bounds.
Let’s have a look at some common Bitcoin use scenarios:
Primary Case: Fast and Low-Cost Transfers
Since Bitcoin was originally invented to aid in transactions, this is its primary use. The transaction fee is very cheap, especially when compared to other alternatives. Moreover, the money gets transferred quickly and the waiting time has been reduced, which is why Bitcoin is being used as a method of payment all around the world.
It’s also helping international transfers. The remittance industry is huge – recorded to be worth $542 billion in 2013 – Bitcoin is helping it become faster and affordable.
Bitcoin average fee was 0.000155 BTC per transaction in 2015, compared to 7.72% of the total amount sent in case of traditional transfers. Moreover, Bitcoin transactions are completed in about ten minutes, it’s almost instant.
Secondary Case: Spend Money In Private
Bitcoin is pseudonymous. While transactions are public, the names and identities are hidden. Members only have public keys as an identity.
This offers great privacy since nobody knows where you’re spending money. It can help in need, i.e: when you need to buy tickets when you want to run away from an abusive partner, However, governments say that this secrecy can be bad since the bad guys can also purchase whatever they want with nobody to keep an eye on their doings.
Silk Road, a big part of the dark web, is a good example of this.
Future Case: Day to Day Purchases
It is believed that Bitcoin will soon be used to make day-to-day purchases. In fact, companies such as Microsoft, NameCheap, and KFC have already started to accept Bitcoin as a mode of payment. However, it’s currently only used online but it’s believed that we’ll soon make payments using Bitcoin at offline stores, too.
In fact, many experts believe that sellers like Fbabee may also soon begin to accept Bitcoin payments. Amazon, the world’s biggest store, is also expected to start accepting Bitcoin payments soon.
While some say that Amazon is not very high on Bitcoin or other cryptocurrencies, we cannot deny the fact that they hold a lot of importance and businesses will not be able to stay away from using cryptos for a very long time.
Bitcoin uses the blockchain technology. Contrary to popular belief, Bitcoin and blockchain are not the same. These are two very different concepts.
Bitcoin is a nontangible asset whereas blockchain is the service that hosts Bitcoin. It allows digital information to be distributed, which keeps the system transparent, but it hides identities and ensures there’s no fraud.
In the words of Don & Alex Tapscott, authors of Blockchain Revolution, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
- Consensus Model
Bitcoin security mainly relies on the proof-of-work based incentive-compatible distributed consensus protocol, controlled by miners. It works on P2P technology and doesn’t rely on a third party to keep the system secure. Hence, there’s no authorization required from any governing body for a transaction to be approved.
It is the duty of miners (network nodes) to maintain the network to ensure the system works honestly. However, since single nodes can crash, they all work together to keep the system safe by running a fault-tolerant consensus protocol.
- Network Effects
The network becomes more reliable and secure as the number of nodes grows. With growing users, Bitcoin becomes stronger and less prone to damage. Moreover, growth in users also causes its value to go up.
This helps make Bitcoin secure as it will be able to defend well against rivals.
- Network Scaling
Scalability is one of the biggest challenges faced by blockchain. The blockchain is huge but it’s still not as big as its main competitors, such as Master Card and Visa. But it will grow tomorrow and that may be a problem as there is a limitation on the number of transactions the network can process due to the limited number of blocks.
However, the good thing is that there are several ideas being discussed that may in the future remove this issue.
Bitcoin may be the first cryptocurrencies but now we have many more. However, we’re yet to see how digital coins can truly change the world of business.