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Bitcoin: Benefits and Limitation
Learn about the benefits and limitation of Blockchain.
Submitted by Vaishnavi Srivastava, on February 02, 2022
Bitcoin is a digital currency in which transactions are validated and records are maintained by a decentralized system rather than a centralized authority using encryption.
Bitcoin is the first and most well-known cryptocurrency in the world. To facilitate peer-to-peer value exchange in the digital world, it employs a decentralized protocol, cryptography, and a means to achieve global consensus on the status of a periodically updated public transaction record known as a "blockchain."
Benefits of Bitcoin
- Bitcoin is permissionless: Unlike traditional money, Bitcoin does not require permission and is available for users worldwide.
- Bitcoin has no boundaries or limitations.
- Bitcoin is unaffected by seizure: Nobody can take your Bitcoin since you own it; it isn't held by a bank or a firm.
- Resistant to Censorship: No one can restrict or censor your transactions since they use a computational process called proof-of-work (PoW).
- Decentralized: The network is dispersed over the globe, with tens of thousands of nodes. Supply is limited: Only 21 million bitcoins will ever be created, and they will be generated at a predictable rate. Bitcoin is deflationary and scarce.
- Anyone can contribute to the development of Bitcoin in a variety of ways, including various Bitcoin software clients.
- Transactions are near-instantaneous because Bitcoin is a digital peer-to-peer currency, as described in the original Satoshi Nakamoto whitepaper. They're also quite cheap, far cheaper than central payment networks like PayPal, Visa, or Mastercard.
- Push System: There is no possibility of chargebacks with Bitcoin because the transaction cannot be undone once it has been transmitted.
- Real Money: Bitcoin is used to pay for items like coffee, food, gadgets, travel, and more all across the world.
- Anonymous: Bitcoin can be used as an anonymous currency that is not monitored by governments if handled correctly.
Limitations of Bitcoin
- Bitcoins Aren't Accepted Across the Board: Bitcoin is still only accepted by a tiny number of internet businesses. As a result, relying solely on Bitcoins as a currency is impossible. It's also possible that governments will force retailers to stop accepting Bitcoins to track consumers' transactions.
- Wallets Can Be Misplaced: Bitcoins are effectively "lost" if a hard drive crashes or a virus corrupts data, and the wallet file is corrupted. There's nothing that can be done to get it back. These coins will remain orphaned in the system indefinitely. This has the potential to bankrupt a wealthy Bitcoin investment in a matter of seconds, with no chance of recovering. The investor's coins will be permanently orphaned as well.
- The value of Bitcoin fluctuates: Bitcoin's value is continually fluctuating based on demand. On June 2nd, 2011, a popular bitcoin exchange site valued one Bitcoin at $9.9. It was only 6 months ago that it was valued at less than $1. Because of the frequent fluctuation, Bitcoin-accepting sites will have to adjust their prices regularly. If a product refund is issued, it will also cause a lot of uncertainty.
- There is no Buyer Protection: When products are purchased using Bitcoins and the seller fails to deliver the goods, there is no way to reverse the transaction. This difficulty can be handled by employing a third-party escrow service such as ClearCoin, however escrow services would then take on the role of banks, making Bitcoins more like traditional currencies.
- Technical Flaws That Aren't Known: The Bitcoin system may have weaknesses that have yet to be discovered. Because this is a relatively new system, if Bitcoins were extensively accepted and a fault was discovered, it might result in enormous wealth for the exploiter at the expense of the Bitcoin economy.