Advantages and Uses of Bitcoins

Michael From our Perspective

With bitcoin finding traction in the UK and most recently Australia, the advantages of bitcoins is becoming more apparent. What started off as a geek trend from a mysterious character has now become a currency respected by many businesses, including LiquidVPN. As acceptance has continued to grow so has the uses for bitcoins.

Using Bitcoins for Anonymity

One of the biggest advantages of bitcoins is that you can remain completely anonymous in your transactions. Using a debit, credit card, or bank account for transactions creates a paper trail, and account details are easily stolen during or long after the online transaction. Using bitcoins allows money to change hands anonymously and securely. Interestingly enough, it is private yet transparent. Although you can see how many bitcoins a particular ‘bitcoin wallet’ has inside of it, you can’t see who owns that wallet. Along with the transparency of each wallet, bitcoin transactions are also publicly and permanently stored on a computerized ledger known as the blockchain.

Although bitcoin is built on anonymity the requirement of having to reveal your bitcoin address for some transactions makes the bitcoins ‘dirty.’ Meaning that any future transactions will be able to be more easily traced. Here are a few ways that anonymity is lost while using bitcoins. Using mixing services and keeping multiple wallets are two ways to improve your bitcoin anonymity.

The Advantages of Bitcoins for Transactions

Unlike traditional money transferring through banks, using bitcoins to transfer money is both fast and cheap. The magic behind this lies in the blockchain. The blockchain is made up of two parts. When you use bitcoins the transaction is converted into data. This data consists of basic information such as how many bitcoins were transferred and the bitcoin addresses. Once the transaction is complete (almost instantaneously) the data gets put into a block that is then placed on the permanent, unalterable ledger. The block tells when and in what order the bitcoin transaction took place.

This is where the advantages of bitcoins really shine. In 2014 for example, a transaction equivalent to $81 million took place. This transfer of bitcoins cost a measly 4 cents and took only 10 minutes to be completed. No traditional bank on Earth can do that.

Furthermore, what makes the blockchain robust is the fact that thousands of nodes are able to instantly come to a consensus on the most-up-to-date version of the blockchain ledger. This cool site shows how many nodes are currently connected.

Using Bitcoins to Make Money

Another use of bitcoins is for investment and trading. Given the tumultuous past of the bitcoin this is obviously a risky proposition: and the days of making millions nearly overnight with bitcoins are over. But the ups and downs of the bitcoin market also make it a viable option.

As far back as 2010 and 2011 a bitcoin cost as little as $1-10, that price sky rocketed in 2013 and reached a peak of over $1200. Currently it has been hanging steady at around $230. A recent scare about a dividing among bitcoin ideals based on the size of the block in a blockchain dropped the price as low as $200 before it recovered to $214 the next day.

Taking advantage of the price of bitcoins in times like this could be lucrative. Nearly all experts say that the price of the bitcoin is expected to rise over time. So getting in low, and selling high in the future is a no-brainer.

If long term investment isn’t your thing you could always trade bitcoins via arbitrage. Arbitrage is taking advantage of the disparity in value between different markets. In this strategy you buy low in one market and immediately sell slightly higher in another- although you have to be quick in order to make this work.

If you like to go against the grain you can also get into short selling and bet on the price of bitcoins going down.

Bitcoins are Safe From Man Made Manipulation

In certain economies around the world the use of bitcoins is especially advantageous. This New York Times article describes how using bitcoins in Argentina is becoming an increasingly popular. Being able to use bitcoins is a way for citizens there to avoid the countries outrageous taxes on foreign transactions.

Other economies are increasingly turning to bitcoins as a way to sidestep central banks. In Denmark the government is set to completely stop printing and minting money in 2016. This is being done in an effort to stem the growing shadow economy and force Danes to pay the increasing amount of taxes.

Furthermore, bitcoins are not susceptible to other man made manipulation of money. For example, when an economy is having a hard time a government might take to quantitative easing. Which is throwing more money into circulation so more people have more of it. This in turn drives up inflation; where you had one dollar you now have two, so that one dollar now gets you less than it did before.

Bitcoins and blockchains are having none of this. In Satoshi Nakamoto’s blueprint the production of bitcoins will stop at 21 million sometime around the year 2120. There is also no central bank to control the output of bitcoins. Which brings us to the next section.

Create Your Own Bitcoins

No other currency allows you to make your own money- legally.

Bitcoins aren’t just laying around waiting to be discovered. Well, I guess they kinda are. But in order to earn bitcoins, computers have to complete increasingly difficult algorithms to ‘unlock’ them. The work a computer has to go through to unlock these bitcoins is enormous. And grows with complexity and difficulty every 16 days. So much so that companies often sell mining machines for $20,000 to upwards of $140,000.

If that kind of price tag just made you do a spitake then there are also alternatives to get bitcoins. Mining pools are becoming increasingly popular. As you can probably guess this were a group of bitcoin miners thirsty for ‘free’ bitcoins pool their computing power together. As they complete the algorithmic puzzle they receive a proportionate amount of bitcoins as the amount of computing power they put in. This site has everything you want to know about bitcoin mining.

feature image courtesy Zach Copley via Flickr

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