3 Reasons Why Bitcoin Is So Important
Bitcoin is the first real digital currency, created in 2009 and now accepted in more and more online stores, despite its former (and continuing) ties to illicit activity. Unlike previous attempts to launch digital money, Bitcoin is not based on any real-world commodity values, existing purely in the virtual world of the Internet. Looking beyond the purely practical uses of Bitcoin, why is it such an important development? Here are three reasons.
1. It’s not controlled
Bitcoin is not subject to the controls or manipulation that other currencies suffer at the hands of governments. There is no gold reserve upon which it relies for its value and there is no single controlling body. It is managed entirely by the online community, who verify transactions and create new currency as required.
This is both a benefit and a drawback: on the negative side, there is no government regulation or consumer protection, and the lack of any commodity backing means that the value of bitcoins could fall to zero. On the positive side, there’s no government or banking interference based on a single political party’s or country’s agenda.
Importance: Bitcoin is free from any individual influence and is managed entirely by mathematical agreement between transaction processors across the online community. It’s a currency for the people, by the people.
2. It’s worldwide
There is no need to change your bitcoins into another currency to use them wherever they are accepted around the world. At the moment, this acceptance is extremely limited when compared to currencies like US dollars and the Euro, but it’s growing.
Again, this has benefits and drawbacks. Some countries are finding that Bitcoin causes them problems: people in Argentina, for example, use bitcoins to circumvent the terrible inflation and monetary controls their government has put in place. While this is good for them, it’s bad for the economy – the controls were put in place for a reason, after all!
On the other hand, there’s enormous freedom associated with cryptocurrencies. They exist globally and are not limited by any borders or frontiers. In a global marketplace, Bitcoin has a distinct advantage.
Importance: Bitcoin is like money in many science fiction films. Once it is accepted everywhere, you will be able to use a single account for anything, anywhere in the world. It’s truly global.
3. It’s not stored in banks
Bitcoins are held by the individual, in their own electronic wallet. This looks like a conceptual step back in currency terms, going from having a centralised account accessed by a debit or credit card to having coins in your pocket. However, Bitcoin wallets are all tied into the online distributed network, so it’s actually a step forward: you own your money and have it in your wallet, like cash, but you can use it anywhere, like a debit or credit card.
The drawback to this is that most people protect their wallets with private cryptographic keys that are essential for operation and a password that is impossible to retrieve if forgotten. One user lost 7,500 bitcoins when he threw away an old hard drive that contained his private key information. Value? Around $7.5 million.
Lost bitcoins are also permanently gone from the pool. Since the Bitcoin protocol has a defined maximum number of coins, the loss of significant numbers of wallets and their contents could have far-reaching long-term effects.
Importance: The ideal currency is one which you own and do not need to put in a bank, where it can be lost, stolen or abused by organisations beyond your control, but which you can use anywhere, at any time. Bitcoin does precisely that.