BITCOIN

1

/

7

DEFINITION

Bitcoin is the first cryptocurrency that appeared in 2009 and, since then, its use and relevance has been increasing exponentially, although its use is still limited by the perception of insecurity and the lack of knowledge that many potential users have.

Bitcoin is a digital (not physical) currency that only exists on the blockchain that supports it. As a currency, it can be used for everything that is used in any other currency backed by a State, such as the euro or the dollar.

However, Bitcoin does not depend on any government entity that issues it or supports it, but the users themselves are the ones who manage and keep Bitcoin running and safe. Therefore, it is possible to make purchases, sales and transactions with this currency from anywhere quickly, without conditions or limitations of any kind.

But, in addition to currency, Bitcoin is a digital system, since, as has been said, it is the first existing blockchain. This technology is an encrypted database where any information can be stored. Its importance lies in the fact that each recorded data is marked with a unique fingerprint that makes it unrepeatable and immutable.

BITCOIN ADVANTAGES

1) Higher liquidity relative to other currencies and cryptocurrencies: As the most popular cryptocurrency, Bitcoin is much more liquid. Furthermore, it is the cryptocurrency that is closest to real assets. This allows its users to buy and sell online and immediately when converting it into physical currencies, such as the euro or the dollar.

2) Wider acceptance as a payment method: This is mainly due to the rise of online commerce and digital transformation.

3) International transactions easier than with normal currencies: International transactions in Bitcoins are the same as those that can be carried out within the same country. Therefore, there are no limits or commissions for international transfers. Also, although most cryptocurrencies have no limits on this type of movement, international transactions using Bitcoin are easier because this cryptocurrency is the most popular worldwide.

4) Typically lower transaction fees: Bitcoin has lower fees compared to other digital payment methods.

5) Anonymity and privacy in relation to traditional currencies: Bitcoin wallets, despite the fact that all currency movements are publicly recorded in the “blockchain” ledger, are not associated with a user identity, so it is not possible to obtain data from them, contrary to what happens with a bank card, for example. Although it is possible to track bitcoin flows between users, it is very difficult to find out who those users really are and to be able to monitor them, unless they have previously provided their identity to an Exchange or cryptocurrency exchange platform.

6) Independence from creators and political agents: Since Bitcoin is not created or controlled by any state entity (such as a central bank), it is not subject to political influence. This makes it difficult for governments to block the use and storage of Bitcoins. Furthermore, due to its completely decentralized nature, its popularity and its liquidity, Bitcoin is also not influenced by its creators, as is the case with other cryptocurrencies, whose values can be manipulated by their creators when buying or selling large amounts of cryptocurrency thus influencing its market value.

7) Inherent scarcity: The inherent scarcity of Bitcoin (only 21 million bitcoins will ever exist) maintains the value of this cryptocurrency in the long term, which is not the case with traditional currencies and with other cryptocurrencies that do not have this scarcity. In a way, the scarcity of Bitcoin gives it intrinsic value, similar to gold and other precious metals.

DISADVANTAGES OF BITCOIN

1) Exposure to Bitcoin-Specific Scams and Scams: As the world's most popular cryptocurrency and one that can be used relatively anonymously, Bitcoin has been the currency used to carry out scams, fraud, and attacks at a higher rate than other currencies.

2) Black market activity could harm its reputation and usefulness: Bitcoin attracts cybercriminals involved in the Dark Web and other online crimes, due to the anonymity it provides and the ease of transacting. Furthermore, as with cash, the international legal system is not prepared to prevent or solve this problem, including money laundering or terrorist financing. The CIA, as well as many intelligence and investigation experts, point out that it is in the interest of cybercriminals to use cryptocurrencies since it facilitates their traceability and investigation, unlike cash that leaves no trace.

3) Susceptible to high price volatility: Although Bitcoin is one of the most liquid cryptocurrencies and one of the easiest to trade, it is still susceptible to large swings in value over short periods of time. Therefore, although Bitcoin can be a good option to invest, it is not very suitable for conservative investors due to its lack of regulation and high volatility. Also, because the value of Bitcoin varies so much from one day to the next, it is difficult for users to use it as a method of exchange.

4) No returns or refunds: One of the biggest disadvantages of Bitcoin is the lack of a standard policy for returns or refunds. In this way, users affected by fraud (such as bank phishing) cannot request a refund using Bitcoin. In fact, the decentralized structure of Bitcoin makes it impossible for anyone to mediate disputes between users.

5) Possibility of being replaced by a superior cryptocurrency: Some of the newer cryptocurrencies make it even more difficult to track money flows or identify users. Others even have systems that allow users to exchange cryptocurrency units directly for physical currencies, thus reducing the associated fraud risks. Therefore, over time, some of these alternatives such as Ethereum could outperform Bitcoin, which could have a negative impact on its value.

6) Environmental damage from Bitcoin mining: Bitcoin mining consumes enormous amounts of electricity, which is necessary for its operation and security. Depending on the origin of the electricity used by Bitcoin miners, for example coal power plants, it could be very harmful to the environment. On the other hand, mining activity is becoming more professionalized, so miners (or mining companies) prefer the use of renewable or clean energy in order to avoid assuming the associated electricity costs. This has led to the spread of the use of solar panels or other renewable energy systems in many countries, making the system more sustainable and reducing its impact on the environment.