Recently, notable interest in payment systems based on virtual currency such as Bitcoin has become widespread. According to Burt, Gilbert, and Blye (n.p), Bitcoin advocates were dealt a major blow in 2014 when the most active Bitcoin world exchange, Mt. Gox, was declared bankrupt, incurring approximately $473 million in losses. Following the Mt. Gox collapse, Bitcoin value fell to around $500 from a high of $1000. Despite this, interest in Bitcoins has remained surprisingly resilient (Trautman 23). This paper will explore the efforts aimed at developing a novel and improved digital exchange medium, its advantages, and disadvantages. The paper will also explore ...view middle of the document...
Keating (31) adds that Bitcoin exchanges have evolved to facilitate transactions by equipping Bitcoin users with a platform for purchasing and selling Bitcoins using different currencies. Exchanges have evolved as the most common means of acquiring Bitcoins with Mt. Gox being one of the biggest exchanges at one time (McMillan & Metz n.p).
Bitcoins are mined by running software through specialized hardware on the computer of a user, using computing power in securing the Bitcoin network, processing and verifying transactions, and keeping all users synchronized together (Mona & James 319). Mona and James (319) also note that the system used in creating new Bitcoins is engineered with a maximum limit of 21 million coins. As more people become recipients of newly minted coins or miners, the mining process yields less new Bitcoins. However, Bitcoin can be divided infinitely, as the currency is not physical (Mona & James 319).
Advantages of Bitcoin
Bitcoins are trusted mainly because they require no trust at all (Mona & James 319: Keating 31). The system is fully open source and decentralized, meaning that any person can access the complete source code it at any moment. Mona and James (319) point out that Bitcoins attract numerous advantages to the users using the medium to make payments, merchants accepting the payments and to users holding Bitcoins to store value.
To the user
Making payments using Bitcoins is easy as compared to credit and debit card purchases (Burt, Gilbert, & Blye n.p). The user can send and receive money huge amounts of money instantly at any time and from anywhere in the world. Moreover, Bitcoin users fully control their money with no imposed limits or borders and users can make Bitcoin payments with extremely little or no processing fees. Transactions from users who include processing fees receive faster confirmation by the network (Burt, Gilbert, & Blye n.p).
To the merchant
A merchant can receive payment for selling goods and services without having a merchant account (Burt, Gilbert, & Blye n.p). Merchant processors assist merchants to process their transactions by converting Bitcoins to flat currencies and later depositing the funds directly into the bank accounts of merchants daily. Since these services are Bitcoin based, they attract lower fees as compared to PayPal or other credit networks. According to Burt, Gilbert, and Blye (n.d.), transactions made using Bitcoins are also secure, for sensitive personal information of users are not included in transactions. In addition, payments made by customers are irreversible, and this protects merchants from fraudulent chargebacks or losses incurred from fraud creating no need for PCI compliance. Another bonus to the merchant is that they can expand into new markets with unacceptably high fraudulent rates and unavailability of credit cards. The net results are fewer administrative costs, large markets, and low fees (Burt, Gilbert, & Blye...