Bitcoins: Your Digital Wallet
by Madeline Barnes on Friday, September 19th, 2014
Information technology and the transfer of data play a major part in our lives, particularly when it comes to the transfer of money from one place to another. The internet has provided us with faster and more efficient ways of making purchases, including online credit card payments, electronic bank transfers, and payment services such as PayPal. In 2009, a person or a group of people using the alias Satoshi Nakamoto took electronic money transfer and online payment systems to an entirely new level by introducing Bitcoins, a form of digital currency. Bitcoins give an individual the ability to electronically purchase goods and services without paying a transaction fee or providing any personal information. To acquire Bitcoins, one typically either receives them as payment from another party or purchases them directly using cash, credit cards, or a dedicated Bitcoin ATM. These bytes of data, which are securely transferred from one “digital wallet” to another, have no physical representation, a key component that differentiates them from cash or credit cards.
There are many advantages to using Bitcoins for transactions, including the ability to make online purchases without the need for a credit card or even a bank account. Furthermore, there is an element of anonymity, similar to a cash purchase, associated with the transaction, which reduces both the merchant and the buyer’s risk of losing personal information. For many buyers, especially those buying very expensive items with Bitcoins, anonymity is the main attraction to the new currency. However, the uncertainty and potential risks associated with Bitcoins may outweigh any benefits provided by them. In my opinion, while the Bitcoin system is intelligent in nature and can be useful, there is no major benefit to using Bitcoins over actual, physical money.
Purchasing and holding Bitcoins as currency is much like participating in the stock market or investing in a foreign currency. Because the supply of Bitcoins is limited by a computer algorithm—currently, there are about 13 million Bitcoins in circulation—their value can fluctuate on a daily basis. As Bitcoin’s official website states, “the price of a Bitcoin is determined by supply and demand. When demand for Bitcoins increases, the price increases, and when demand falls, the price falls. There is only a limited number of Bitcoins in circulation and new Bitcoins are created at a predictable and decreasing rate.” The unpredictable nature of this currency can either potentially benefit or harm its holder, thus creating an added level of risk associated with this virtual currency.
Along with its fluctuating economic value, one’s Bitcoin wallet is, on average, much less secure than a bank account or even a sock drawer. Bitcoins are stored on one’s computer, or in the “Cloud,” leaving the account vulnerable to computer crashes and hackers, according to CNN Money. Furthermore, lost or stolen Bitcoins are impossible to replace. Finally, it remains to be seen just how many merchants and vendors will ultimately accept Bitcoins as a form of payment.
MIT was one of the first universities to promote the use of Bitcoins. The school installed a Bitcoin ATM and has also created the Bitcoin Project, where “two MIT students have raised half a million dollars for a project to distribute $100 in Bitcoin to every undergraduate student this fall,” as stated by the MIT Bitcoin Club. In doing so, MIT is promoting the positive aspects of Bitcoin, such as fraud protection, easy access, and zero transaction fees. However, with all the drawbacks such as market volatility, account safety and uncertainty regarding acceptance, I would not want to risk the value and security of my personal finances by completely switching over to Bitcoin.
Nonetheless, I believe the concept and implementation of the currency are brilliant. It allows individuals to make purchases electronically without fees and without compromising personal information. However, given the virtual currency’s fluctuating value and lack of replacement, a credit card or cash might be a safer option.
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