Before some people buy bitcoin they think, What Are The Advantages And Disadvantages Of Bitcoin?

With all the information swirling around out there I don’t blame them.

Below I’ll discuss five advantages and three disadvantages surrounding bitcoin.

What Are The Advantages And Disadvantages Of Bitcoin?

First things first, as with regular currency you can also use bitcoin as payment for products and services online. Its next advantage is the similarity that it shares with gold in that its supply is finite, which adds value to it. After that, there is the transparency that bitcoin’s transactions provide. Then there is bitcoin’s liquidity which means people should be able to sell it fairly quickly if they want to. Also, bitcoin has been gaining much more acceptance lately. Now when it comes to disadvantages, bitcoin’s limited supply not only creates value but increases the volatility as well. Lastly, there are the people worried about the so-called bitcoin underworld and the others concerned with the pretty extensive power usage associated with bitcoin mining. 

What is Bitcoin?

The cryptocurrency bitcoin was invented in 2008 by “Satoshi Nakamoto”, which could be a person or a group of people, no one knows for sure. 

It was first released for use in 2009 as open-sourced software. Bitcoin was the first decentralized digital currency. 

It can be bought, sold, and traded from one user to another (peer-to-peer) without the need for a bank or any other intermediary. 

Every bitcoin transaction is verified by nodes (basically computers) on the bitcoin network using cryptography. 

That transaction is then recorded in a publicly distributed ledger that is available to everyone called the blockchain. 

One little caveat, since these transactions are recorded on thousands of nodes in the network, it would be very difficult to scam the system.

1. What are Bitcoins Advantages?

1.1. Digital Currency

Like fiat currency (regular money), you can buy products or services with bitcoin over the internet. 

Also, bitcoins are interchangeable the same as regular currency. 

That means, one bitcoin is worth the same as another bitcoin. 

Then you have bitcoin’s divisibility as compared to fiat currencies. 

You can take U.S. money, for example, it can be divided into larger and smaller bills and larger and smaller coins. 

So like dollars, the digital currency bitcoin can also be broken down into large and small units, even smaller than dollars actually. 

A bitcoin’s smallest fraction is one Satoshi, which is represented as 0.00000001 BTC or equals 100 millionth of a bitcoin. 

One final note and another bitcoin benefit, unlike regular currency, you can do international transactions with bitcoin without the need for currency conversions.

1.2. Digital Gold

Even though bitcoin is a virtual asset and gold is a physical one, they still have a couple of things in common.

1.2.a. Limited Supply

Now no one can say exactly how much gold there is and when all the gold will be mined. 

Nonetheless, some say it will all be mined by the year 2035, while others claim it won’t be until 2070. 

However, no matter the date, eventually there will be no more gold left to mine on earth. 

Although, according to (bbc.com) “While gold in the ground may be hard to quantify, it's not the only source. There is also gold on the moon.” 

Albeit, according to space expert (Sinead O'Sullivan) "Whilst it exists, it would never be economically meaningful to mine it.” 

Now as far as bitcoin goes, we do know how many of them will be mined. 

Ultimately, there will only be 21 million bitcoins produced. 

However, unlike gold, most people agree that the last bitcoin will be mined around the year 2140.

1.2.b. Value

Gold has the highest market cap of all the precious metals (To get gold’s market cap: you multiply gold’s current price per ounce with the world’s above-ground gold reserves). 

Gold’s market cap is valued above 11 Trillion dollars as of right now, September 5, 2021. 

So just so you know, that is more than 7 times its nearest competitor, silver.

Next, we have bitcoin. 

It has the highest market cap of all the cryptocurrencies (To get bitcoin’s market cap: you multiply bitcoin’s current price per coin with its circulating supply). 

Bitcoin’s market cap is valued at over $900 billion at the moment. 

Which is more than double its nearest competitor, Ethereum. 

One of the biggest factors determining gold and bitcoin’s value is supply and demand.

1.3. Bitcoin’s Transparency & Security

All bitcoin transactions are verified by all of the network nodes (thousands of computers around the world) using cryptography. 

Another thing, every bitcoin transaction that has ever been done or will be done is recorded on the blockchain. 

Now the blockchain is a publicly distributed ledger (like a digital accounting book). 

Also, as far as transparency, and according to (bitcoin.org) “All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network.” 

However, when it comes to privacy and security, your bitcoin address is the only thing associated with each transaction. 

Although, if you use the same address with every transaction, however unlikely, it is still possible for someone to find out who you are. 

Therefore, someone could potentially steal your personal information or identity, like with regular digital payments such as credit cards. 

So to be safe, you should always use a new address every time you receive some bitcoin.

1.4. Bitcoin’s Liquidity

Liquidity is basically determined by how difficult it is to convert an asset into cash without impacting its market price. 

The quicker and easier it is to liquidate an asset without a significant price move in the market, the more liquid something is said to be. 

With that being said, I would consider bitcoin to be pretty liquid nowadays. 

Unlike a few years ago, there are several stable and reliable exchanges where you can buy, sell, or trade bitcoin rather quickly.

Also, more recently trading volume is usually over $10 billion a day. 

One other thing, the crypto markets are open to you 24 hours a day and 7 days a week. 

That can’t be said of some other markets, like the stock exchange for example. 

So if you wanted to sell some bitcoin and there wasn’t a catastrophic event happening at the time, like a market crash, you really shouldn’t have any problem doing it.

1.5. Bitcoin’s Acceptance

As of right now, I think it's still a little bit confusing when it comes to who accepts bitcoin as payment for goods or services. 

Lately, I have done some research on the subject and in some cases, it’s pretty obvious concerning who accepts bitcoin as a form of payment (Overstock.com, Travala.com… etc.). 

Although, there are still places where it’s not as black and white. 

However, there was an article in (Business wire) on January 15, 2020, where they stated “At least one-third of U.S. small and medium-sized businesses accept cryptocurrency as payment for goods and services” according to a survey by (HSB), part of Munich Re. 

Also, I’ve recently noticed more and more institutional investors and companies beginning to see the advantages bitcoin brings to the marketplace. 

So I don’t think we will have to wait too long before bitcoin’s acceptance is more widespread.

2. What are Bitcoins Disadvantages?

2.1. Bitcoin Volatility

Volatility measures how sharply prices can change either up or down in a given time period. 

It is usually expressed as a percentage. 

If something is said to have 30% volatility, what they are saying is that it’s capable of gaining or losing 30% of its value. 

When compared to the volatility of traditional assets bitcoin has historically been higher. 

One of the reasons for this is bitcoin’s limited supply. 

Also, since it has only been around since 2009 and is still in its price discovery phase volatility is to be expected. 

Now some people think this rate of volatility will be with us for a long time to come. 

However, others believe since more and more institutional investors are getting involved some price stability will come along with it.

2.2. Bitcoin Underworld

Over the years people have used bitcoin to do things such as launder money and obtain stolen credit card info. 

Also, buying and selling illegal drugs on what some call the darknet markets has been done using bitcoin. 

However, more recently terrorism and ransomware attacks have become the big concern as far as illegal activities go. 

When you combine all that with some people in authority saying that the majority of crypto transactions are used for illicit financing, it has managed to put a stain on bitcoin and the whole crypto industry. 

Although I think a lot of the criticism is unfounded. 

Since based on an article in (Forbes.com) “According to an excerpt from Chainalysis’ 2021 report, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume (roughly $21.4 billion worth of transfers). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% ($10.0 billion in transaction volume).” 

Also, criminals use every type of currency in existence for nefarious purposes, not just bitcoin or other crypto’s. 

Not to mention with the amount of transparency associated with the bitcoin blockchain, I'd be willing to bet that's easier to partake in criminality and conceal it with fiat currency (regular money) than it is with bitcoin.

2.3. Bitcoin Power

Mining bitcoin takes thousands of computers (usually specialized ones are used). 

These computers (known as nodes) solve cryptographic equations in order to verify transactions and add blocks to the blockchain. 

However, solving these complex problems consistently uses a whole lot of electricity. 

Now according to Digiconomist, as of July 15, 2021, a single Bitcoin block requires 1,721.96 kWh. 

Also, researchers at Cambridge say it consumes around 121.36 terawatt-hours (TWh) annually. 

Which is more than the country of Argentina uses in a whole year.

So the people who don't like where the electricity usually comes from in order to mine the bitcoin are pretty unhappy.

Although, it was just brought to my attention that a big bitcoin mining company is using waste coal to produce the energy that it uses to mine bitcoin.

So maybe a lot of other big miners will start using alternative sources of energy for their mining operations as well.

To wrap it up

Bitcoin, which was released in 2009 was the first digital currency. Now like regular money, you can use bitcoin to buy products and services online. It is also referred to as digital gold because it has a limited supply and the highest market cap of all the cryptos. Next, All Bitcoin transactions are public, traceable, and stored in the Bitcoin network indefinitely. Another advantage is that in recent years bitcoin’s liquidity has made it so you shouldn't have any problem selling it under normal circumstances. Then you have bitcoin’s acceptance which still comes with a little confusion but has improved since its release and has been picking up steam in the last few years. Now as far as disadvantages, bitcoin’s limited supply works like a double-edged sword. The finite number of bitcoins gives it value, but it also comes with great volatility. There are also a lot of people worried about the criminal element using bitcoin to finance their dirty deeds. Finally, there is the massive amount of power needed to mine bitcoin. Although hopefully, more of the big mining operations will turn their focus to alternative energy sources when it comes to producing bitcoins.