People are growing more confident in Bitcoins every day. What was once a topic only discussed in the deepest crevices of the internet is now being discussed by Forbes, Fortune, and Floyd Mayweather (the three F’s of money).What is it about cryptocurrencies that is allowing more and more people to trust it and invest their money? What does it do better than “real money” anyway? There are a lot of differences between how bitcoin works and how paper money, or fiat, works. Let’s look at some of the more interesting features of bitcoin and how that might be used in a world where more people use bitcoins.
Person to Person Transactions
There is no one institution between you and your recipient. No one to collect fees, charge interest, impose limits, or set rates. Once you and your recipient have agreed on the terms, the network handles the rest. You pay a small fee that verifies your transaction and your money is on its way. When you reduce the number of people you need to trust in order to make a transaction, you increase the number of people who are comfortable with that transaction.
In many countries on Earth, there is little institutional trust in government or central banks. EY’s Global Consumer Banking survey found that 4 in 10 people with bank accounts had less trust in their banks at the end of 2016. If your country is facing rapid inflation or civil war (also, the list of wars going on right now is too damn high), you are not trusting your government with your money. You might be very interested in having your money not go through a middle-man.
Without a single entity between you and the other end of the transaction, another world of financial services opens up. Without being able to profit from interest, we have the freedom to choose any network that is focused on providing a fast network, minimizing fees, and reacting to changes in other markets. Just like any app on your phone, we can see upgrades that increase the usability and value of the network, not find new venues for profit. When you look at new products or features that banks provide today, we rarely find services that increase our access to money or remove any inconveniences. What we have instead are features designed for third party profit rather than improving the user experience.
With cryptocurrencies, everyone wants the network to work better. When all of the people in the network are dependent on the network working well, new features actually improve the ease, security, or speed of the network. When was the last time your bank did anything to make something faster?
No Prerequisites or Limits
What do you need to do to get a bitcoin wallet? Click here, move your mouse, type some gibberish on your keyboard, and you got it. That is probably the easiest of many simple methods to make a bitcoin wallet. What do you need to do to get bank account? Speak to a human, provide identification, deposit money, maintain a balance, and supply personal information. Each of these prerequisites stops more and more people from being able to access a safe place to hold value. Anyone with an internet connected device can make a cryptocurrency wallet that can send and receive money. Great, right? Your uncle with terrible credit can get an account!
There are many more implications for accounts without prerequisites or limits. When things are free, they go everywhere to everybody. Those most likely to be denied a bank account are the people who need to take care of their money the most. If inflation or overwhelming debt are a problem in your economy, you can move your money to a cryptocurrency that has a more stable trend for a low cost. If the closest bank is a three day trek over a mountain, it may be more useful to use an internet-based currency. Or perhaps let’s say you have good reason not to trust any of the financial institutions around you, a decentralized currency would allow you to avoid that entirely.
Perhaps none of those situations sound like yours, but it applies to two billion people worldwide. Not only do these people have a need for a banking alternative, but they need a system without arbitrary limits or prerequisites. Any monetary system that can provide a possible solution for people who have limited choices in their banking needs is going to see a lot of money come its way.
Also, consider the fees you might be paying at your bank. Many of those fees exist because banks have what is known as required reserves. This how much money your bank has to keep and cannot loan out or invest. Similarly, the bank may require you to maintain a minimum balance so that they may meet this requirement. Overdraft fees are also a feature invented by banks. When you are working with cryptocurrencies, you simply cannot complete a transaction when there are insufficient funds.
Furthermore, cryptocurrency wallets are anonymous. This means anyone can make one, or two, or as many as they want. This means a convicted murderer and a Medal of Honor recipient are equally as worthy for an account. While this has led to bitcoin gaining a reputation as a vehicle for money laundering and other organized crimes, there are positives as well. Since no personal data is collected, the network cannot discriminate between races, colors, sexes, genders, religions, height, attractiveness, or sock size. The anonymous nature of the network levels the playing field in the world of banking and financial practices.
Open Source Software
Bitcoin, along with most other cryptocurrencies, is open source. Anyone can see the code that makes the computers run. We can all see what makes this thing go. The blockchain, where all transactions are recorded, is also open. This is revolutionary because this means if someone –anyone comes up with good code that everyone agrees would be best, it gains traction. People start whispering about it. It’s the talk of the town. “It would speed up transactions!” “More people would be able to mine!” Tangible benefits would get people excited. Eventually, if enough people started using the technology, it would lock-in and become part of the system. Not only is the source open, but the upgrade process is open, too.
Cryptocurrencies also have open ledgers. All accounts and all transactions are part of a public record. You could calculate the balance of every account that has ever existed. No one can hide any money that is in the system. No one can conceal a transaction. Because of the open nature of many cryptocurrencies, it is difficult to hide money. While people have been able to hide their identities while moving currencies, they can’t hide the currency.
Bitcoins and everything that will be coming after it will be very different than the money we have known. It’s open, anyone can use it, and there’s no one between you and your money. As more people begin to invest in a money system with these features, it will grow. More people will see the tangible benefits of removing banks from their financial picture and find out about a currency that is right for them.
Bitcoin is just the beginning, but it is not for everyone. More coins will continue to be developed that are more individualized and target the needs of diverse groups of people. Citizens of third-world countries will find the currency that is right for them. Mountain climbing Sherpas will find the money that meets their needs. We are moving to world where there are more money systems than ever before and we will be allowed to deal with the one that is best for us.