What is Bitcoin? Is it something like PayPal? How can I use it? These are three of the most common questions I hear from my friends all the time. Since Bitcoin is trending on the news, everyone wants to know about it. And, since it’s digital currency, most people immediately assume that Bitcoin is an alternative to PayPal and other online payment systems. But it’s really not. Short answer – Bitcoin is completely different than PayPal and it’s definitely not the best kind of virtual currency for everyday use. Read along to find out why.
Bitcoin is an open-source peer-to-peer payment system which doesn’t involve central authority or banks to manage transactions. Which means, when you use Bitcoins to purchase something you are directly exchanging it with the merchant. As a result, anyone can use Bitcoin to make payments anonymously without having to face any regulations or ending up in jail (read cryptocurrency). Bitcoin is currently experimental, but the number of users is growing rapidly every day.
At the moment, Bitcoin is used as a payment system by a lot of online shopping, gambling, web hosting websites as well as a few local stores and coffee shops in some countries.
It actually depends on how you use Bitcoin. If you’re planning on using Bitcoin to order something off eBay or pay for something you’ve picked-up at a local clothing store, you will be in some trouble because Bitcoin is not widely accepted as a payment method, at least not at the moment. However, if you’re a gambler and likes to take a risk or jump into mining to earn some easy cash, Bitcoin will work out great for you.
There are a few ways you can purchase Bitcoins, you can simply use your money in the bank to get Bitcoins from a seller or you can start mining. Bitcoin Mining is a complicated method the company introduced to get the word out about this new digital currency. It basically lets you earn Bitcoins by running a software on your computer to solve complicated mathematical problems. It may sound easy but it’s actually harder than mining for diamonds. I’m not going to go into detail about Bitcoin mining or about ways you can exchange it, but keep in mind that it’s a hard gamble.
One of the major issues with using Bitcoin is that the price of a Bitcoin is unpredictable. Depending on current trends in the market, the price of a Bitcoin can increase or decrease within just a few minutes. For example, On December 18, 2013 Bitcoin value went down by over 50% after China’s Central Bank banned Chinese financial institutions from using Bitcoin. And just recently, on January 6, 2014 price of a Bitcoin went up over $1,000 after the popular online game developer Zynga announced its’ plans for using it as payment a payment method.
Just as its value, the future of Bitcoin is completely doubtful. If you play well, you can be a Bitcoin millionaire in just a few weeks. However, it will only take a simple bump in the market to turn you from millionaire to penniless within seconds.
When comparing Bitcoin with PayPal, there are dozens of factors that separates these two online payment systems.
If you’re thinking about keeping your Bitcoin stored in a digital wallet, you should think again because unlike PayPal, Bitcoin value changes over time. Which means your today’s $500 dollar worth Bitcoins may get lowered to $50 dollars in the next day without a warning. In a way it’s like buying stock of a corporation.
A good reason to use Bitcoin is its’ anonymity. Even though your Bitcoin transaction go public, your profile remains anonymous to others no matter who you deal with. This also brings up a question of trust, but compared to PayPal it’s a risk you have to take to avoid bank issues and financial institutions.
On the other hand, Bitcoin is a dangerous method of virtual currency. Since the moment you sign-up for the service you are on your own. As a company, Bitcoin doesn’t guarantee you of its’ services, which means you are responsible for keeping your Bitcoin wallet safe. Although, you don’t have to worry about that with PayPal, which is currently an acceptably secure way to pay online and even in many mainstream stores around the world. Using Security Keys and MTAN, PayPal guarantees the security of your precious transaction.
Infographic made by Statista shows how Bitcoin compares against other online payment networks (as of December 2013).
A lot of people takes Bitcoin as a joke and a ridiculous idea, but that doesn’t mean Bitcoin is failing. The company is slowly growing and as you may have seen in advertisements, (especially in TV shows like Almost Human) Bitcoin is planning for the future ahead. Although, if you’re an ordinary shopper and not interested in risking your hard-earned cash, it’s best to stick with the commonly accepted payment systems, for the moment.
[Photo Credit: Flickr - btckeychain]
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