Satoshi Nakamoto originally created bitcoin as an alternative, decentralized payment method. Unlike international bank transfers, it was low-cost and almost instantaneous.
You’ve probably heard that bitcoin and cryptocurrencies and all the hype around them as being the “future of finance.” The primary philosophy behind Bitcoin was to create an electronic payment system that would not rely on a third party or central authority for confirmation, settlement or issuance.
In addition to eliminating third parties, bitcoin transactions were touted as being irreversible, immutable and relatively cheaper than traditional payment options. Compared to fiat currencies that are controlled by the government, Bitcoin is public and operates independently of any state entity. Transactions are digitally verified through a type of ledger technology known as a blockchain that isn’t bound to one central server, but rather to a global network of computers. This makes bitcoin transactions significantly less vulnerable to fraud or chargebacks.
Imagine waking up one morning to a closed PayPal account because the company claims there has been some fraudulent activity involving your account. That cannot happen in a decentralized setting because your funds are not controlled by a centralized entity. Similarly, the government of your country cannot shut down the blockchain because it is not hosted on a single server or in a single location.
These features are particularly beneficial to online merchants and allow consumers to enjoy a wider selection of domestic and international markets without worrying about high fees or geographical restrictions. Moreover, bitcoin transactions are pseudonymous, meaning they offer users some degree of anonymity when trading or exchanging funds.
Bitcoin for cross border remittance
To an extent, Bitcoin also addresses the problems with the current model of remittance, particularly the issues of price and speed. Traditional remittance services typically charge exorbitant fees and transfers may take several days to get to their destinations. Bitcoin, on the other hand, is not only faster, but also much cheaper. This is because the Bitcoin network does not rely on any intermediary to confirm transactions. There is a network of voluntary contributors all over the world that are running their computing equipment 24/7 to confirm bitcoin transactions.
It takes about 10 minutes for a BTC payment to be confirmed. This can be lower or higher, depending on how congested the Bitcoin network is. The more people using the network at any given time, the longer it takes to process a transaction and vice versa. You can think of it like traffic on a motorway. The busier it is, the longer it takes for each car to reach its destination.
Bitcoin has proven to be a more efficient and cheaper way to transfer money across borders. For instance, according to the World Bank, the global average cost of sending a $200 remittance in the third quarter of 2020 was 6.82%. That can become quite significant for higher figures. Whereas, the average transaction fee of the Bitcoin network is currently around $2.67. That is why countries like El Salvador have made the cryptocurrency a legally recognized form of money.
In general, Bitcoin is decentralized and gives people the freedom to exchange value without relying on intermediaries. And thanks to the institutional boom of 2020 and 2021, many traditional companies now accept bitcoin as payments.
A store of value
Away from its use as a medium of exchange, bitcoin has earned itself the title of “digital gold” because of its scarcity and potential use as an economic or inflation hedge – a type of asset purchased to protect against an economic crisis or decreasing currency value (respectively.)
Just like gold, which has a finite supply, Bitcoin has a maximum supply of 21 million tokens. So far, 18.9 million Bitcoin tokens have been mined. For this reason, many traders, institutional investors, and small-time savers have woken up to the potential gains from bitcoin’s price appreciation because there are only 2.1 million left to enter circulation.
It’s estimated there are just over 20 million millionaires in the world, meaning there’s just enough for each to own a single BTC, notwithstanding the rest of the world’s population.