A:

Due to the unique nature of virtual currencies, there are some inherent advantages to transacting through Bitcoin that users of other currencies do not get. Digital currencies are a relatively new and untested medium of exchange, and users should be careful to weigh their benefits and risks. That said, Bitcoin appears to offer some unique possibilities.

What Is Bitcoin?

Bitcoin is a decentralized, peer-to-peer, "cryptocurrency" system designed to allow online users to process transactions through digital units of exchange called Bitcoins. Started in 2009 by a mysterious programmer, Bitcoin has generated plenty of interest and controversy as a "third" type of currency and an alternative to government flat currencies like the U.S. dollar or the euro or pure commodity currencies like gold or silver coins.

Bitcoin payments are processed through a private network of computers linked through a shared program. Each transaction is simultaneously recorded in a "blockchain" on each computer that updates and informs all accounts.

Bitcoins are either "mined" by a computer through a process of solving increasingly complex mathematical algorithms or purchased with standard national money currencies and placed into a "Bitcoin wallet" that is accessed through a smartphone or computer.

User Anonymity

Bitcoin purchases are discrete. Unless a user voluntarily publishes his Bitcoin transactions, his purchases are never associated with his personal identity, much like cash-only purchases, and cannot be traced back to him. In fact, the anonymous Bitcoin address that is generated for user purchases changes with each transaction.

No Third-party Interruptions

One of the most widely publicized benefits of Bitcoin is that governments, banks and other financial intermediaries have no way to interrupt user transactions or place freezes on Bitcoin accounts. The system is purely peer-to-peer; users experience a greater degree of freedom than with national currencies.

Purchases Are Not Taxed

Since there is no way for third parties to identify, track or intercept transactions that are denominated in Bitcoins, one of the major advantages of Bitcoin is that sales taxes are not added onto any purchases.

Very Low Transaction Fees

Standard wire transfers and foreign purchases typically involve fees and exchange costs. Since Bitcoin transactions have no intermediary institutions or government involvement, the costs of transacting are kept very low. This can be a major advantage for travelers. Additionally, any transfer in Bitcoins happens very quickly, eliminating the inconvenience of typical authorization requirements and wait periods.

Mobile Payments

Like with many online payment systems, Bitcoin users can pay for their coins anywhere they have Internet access. This means that purchasers never have to travel to a bank or a store to buy a product. However, unlike online payments made with U.S. bank accounts or credit cards, personal information is not necessary to complete any transaction.

RELATED FAQS
  1. How do you buy Bitcoins?

    Many people have heard of this virtual cryptocurrency, but few know all the ways you can purchase Bitcoin. Read Answer >>
  2. What are the risks of investing in Bitcoin?

    Learn how Bitcoin is an unregulated, uninsured and unregistered private digital currency that can be used as a speculative ... Read Answer >>
  3. Why do Bitcoins have value?

    Performing with transactional anonymity, Bitcoin has value as a private digital currency, investment tool and social networking ... Read Answer >>
  4. Is Bitcoin legal in the US?

    Learn about the legality of Bitcoin as a form of payment in the United States, as well as how it is produced and concerns ... Read Answer >>
  5. What does a block chain record in a bitcoin exchange transaction?

    Read about the bitcoin blockchain, a public ledger shared among all bitcoin users that records the information of every single ... Read Answer >>
  6. How does a block chain prevent double-spending of Bitcoins?

    Find out how double-spending is prevented in the Bitcoin server and how transactions are posted and verified on the Bitcoin ... Read Answer >>
Related Articles
  1. Small Business

    How Bitcoin Can Change The World

    Bitcoin has the potential to not only create savings for consumer, but also to transform global transactions.
  2. Taxes

    Are There Taxes On Bitcoins?

    Here is a short guide to the tax implications when using or investing in bitcoins in the US.
  3. Small Business

    Countries Where Bitcoin Is Legal & Illegal (DISH, OTSK)

    Although bitcoin has been in existence for five years, most countries still do not have consistent laws regulating the cryptocurrency. However, a few countries have banned bitcoin altogether.
  4. Small Business

    How To Trade Forex With Bitcoin (XOM, EXPE)

    We look at ways to trade forex with bitcoin and the pitfalls in doing so.
  5. Small Business

    The Rise And Fall And Rise Of Bitcoin

    A look at the reasons behind the recent spectacular surge in bitcoin prices.
  6. Small Business

    When Will Bitcoin Soar?

    We look at what determines the value of Bitcoin, the digital currency, and when it might take off.
  7. Small Business

    Bitcoin's Main Stumbling Block: Navigating The Law

    Coders created Bitcoin to be decentralized and independent of governments and banks. Authorities are still struggling to create a legal framework.
  8. Small Business

    Ways To Earn Bitcoins

    There are many ways to earn and own Bitcoins other than just buying them on a Bitcoin exchange.
  9. Small Business

    What Bitcoin Regulations Look Like Around The World

    Bitcoin is still so new that countries are struggling to make legislation catch up with technology. Some nations are more open to virtual currency than others.
  10. Small Business

    Benefits & Risks of Trading Forex with Bitcoin

    Want to trade forex using bitcoins? Don’t jump on the bandwagon until you compare the risks to the benefits.
RELATED TERMS
  1. Bitcoin

    A digital or virtual currency that uses peer-to-peer technology ...
  2. Trade Hill Exchange

    A Bitcoin exchange launched in June of 2011. Trade Hill Exchange ...
  3. Mt. Gox

    One of the world's leading Bitcoin exchanges, launched in July ...
  4. Bitomat

    A Polish-based bitcoin exchange. Bitomat was the first Bitcoin ...
  5. Bitcoin Wallet

    A Bitcoin wallet is a software program where Bitcoins are stored. ...
  6. Britcoin

    A U.K.-based Bitcoin exchange. Britcoin was the first Bitcoin ...
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center