The benefits of Bitcoin have drawn the attention of millions of users in the last decade. Launched in 2019, Bitcoin remains the most popular and widely used cryptocurrency in the world.
Since then, there has been a constant debate about whether cryptocurrency offers remarkable advantages over other money transfer options. There exist controversial arguments by experts and investors both for and against cryptos. In this article, we will explore the benefits of Bitcoin and debunk its most common myths.
Bitcoin, like other cryptocurrencies, is characterized as a decentralized peer-to-peer network of users. The non-interference from government institutions or central banks means Bitcoin transactions are structurally different from traditional fiat transactions. So, what are the benefits of Bitcoin over fiat money transactions?
One of the popular myths that critics use to discredit Bitcoin is that it is a slow and expensive network. Let’s go ahead and try to debunk this popular belief by looking at the facts.
Bitcoin is an example of a digital payment method. Compared to other methods such as PayPal and credit cards – the transaction costs on Bitcoin are favorable.
While a $3,000 transaction in Bitcoins can cost you around $0.1 – $1 in commissions (0.0001%), PayPal, Skrill, Neteller or any other similar payment system could cost roughly $200 (2%), or even more.
It is mainly because with Bitcoin, there is no intermediary to charge transaction fees. Bitcoin transactions are done directly from one party to another. The payment processing does not pass through any financial institution. As such, the system can be referred to as a “peer-to-peer electronic cash system”. These small transaction fees go to the miners, to ensure the security of the network.
Another advantage of Bitcoin is that all transactions are recorded on a blockchain. The blockchain is a public distributed ledger that holds the records of all the previous Bitcoin transactions.
A private network of computers is linked through a shared program. This network makes it possible to process Bitcoin transactions. Each computer records the transactions on the blockchain and stores them in groups known as blocks.
A transaction that has already been added to the blockchain is irreversible. Bitcoin units in a transaction are held in escrow until it is added to the blockchain. The system, therefore, prevents duplicate transactions.
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Speed is undoubtedly one of the most popular benefits of Bitcoin. It takes an average of 10 minutes to register a new block. However, this does not mean that the processing of a transaction will take the same time.
These so-called blocks, are just the way the blockchain groups the transactions. The number of transactions that fit into a block is dynamic, but on average, about 2200 are recorded in each block.
The number of Bitcoin transactions that can be processed per second increased to around 20, following the SegWit soft fork implementation in 2017.
This translates to a processing capacity of about 1.7 million transactions each day. This number is quite far from what is expected as per the legacy payment systems standards, giving rise to the popular belief that Bitcoin transactions are slow.
Because of this “slowness”, critics dispel the idea of Bitcoin as a probable generalized mode of payment. Nevertheless, a critical perspective is to see Bitcoin as only the underlying layer on which other services run.
A significant milestone was the release of Lightning Network in March 2018. The network is a layer-two solution built on the Bitcoin blockchain. It works by the principle that smaller transactions could be recorded off-chain.
In this way, the system makes operations safer while maintaining all the advantages of Bitcoin. It’s estimated that the Lightning Network could eventually process 1 million transactions per second.
Another popular belief is that the Bitcoin network uses high amounts of energy. This is regarded to be damaging to the environment and, therefore, widely criticized. While it is true that the Bitcoin network does consume much electricity, this argument does not take into account the energy expenditures of the traditional fiat money system.
Already in the U.S. alone, the Federal Reserve spends $700 million on printing dollar bills annually. This is comparable, or even higher than Bitcoin expenditures. But in those countries where renewable energy is making its way, the electricity burden of the Bitcoin network will become far less disadvantageous.
Bitcoin offers several other advantages as compared to the legacy fiat system. User anonymity, censorship-resistant, low transaction costs, and possibly, the safest way of recording transactions. By looking at these benefits of Bitcoin, it becomes clear that Bitcoin is not a slow and expensive network. Having debunked these myths, we can conclude that cryptocurrencies are paving the path ahead for a new financial system.