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What Makes It Different?

Published: 14/09/2018
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Up-to-date Blockchain and cryptocurrency news. Be the first to know!

What is it for?

While bitcoin is a cryptocurrency, it also has such money properties as divisibility, uniformity, and portability. Bitcoins can be divided into equivalent parts called satoshi (0.00000001 BTC), the coins are stored in a digital wallet and can be used for purchases. At first sight, bitcoin has the same perks as bank cards, but in fact, it is not quite right. This cryptocurrency has several advantages and is different from centralized payment systems, such as Visa, MasterCard, etc.

 

Decentralization

 

Any traditional payment system has a central node that processes all operations. For example, transferring money from one bank account to another usually looks the following way:

 

A sender requests to transfer funds -> a bank considers and processes the request-> the funds are transferred to the account of a recipient.

 

 

 Intermediares between sender and receiver in traditional payment system vs. Bitcoin transactions

 

In the Bitcoin network, there is no financial intermediary (for example, a bank) that could track the amount of transferred money and the identities of a sender and a recipient, freeze or cancel the payment, or request additional data. Users transfer funds to each other without any censorship.

 

No intermediaries

 

Each financial intermediary increases the chance that something will go wrong, and a recipient will not get his money or it will not be transferred at all. The absence of intermediaries provides several advantages, such as control, censorship resistance and low fees.

 

Control

 

Account holders in traditional payment systems do not control the movement of their funds; they only send a request. Afterwards, the request is processed by financial intermediaries, who manage other people's money. This happens unnoticed by users — at least until the first failure in the system occurs. The more intermediaries are involved in the transfer chain, the higher the probability of an error or a breakdown. In case of the Bitcoin network things are different: only the owner of the private key has access to the crypto wallet and he is the only one entitled to dispose bitcoins stored in it.

 

Speed

 

Intermediaries are not involved in the process of confirming transactions which fastens the process. The speed of processing and confirming payments does not depend on the amount of transferred funds or the distance between users.

 

Low fees

 

While each stage of cash movement through a bank is not free of charge, and clients have nothing to do but agree with these rules, transactions in the Bitcoin network are conducted directly between participants, the fee is charged only once, and a sender is the one who adjusts its size.

 

 

How the Traditional Banking System works

 

Anonymity

 

A payment system (PayPal, Skrill, QIWI, etc.) and a bank ask their customers to provide their personal data. Clients allow processing this information, though it can be stolen or used without their knowledge.

 

All members of the Bitcoin network are anonymous, no one knows their identities and contact details. Whereas the system is transparent, the network users see public wallet addresses of senders and receivers as well as the transaction amount. However, their identities and locations remain unknown.

 

Data Immutability

 

All currency transactions ever committed in the Bitcoin network are recorded and stored. All information is retained on users' computers, no one can change it. This is the distributed data register that guarantees the transparency of the Bitcoin network. A network member cannot manipulate the network to get more coins in the wallet.

 

A confirmed transaction cannot be reversed or cancelled. So you have to be careful when sending money to other users.

 

Absence of an external regulation

 

The exchange rate of fiat money always depends on external factors and monetary policy, carried out by regulatory bodies – central banks. This opens up wide opportunities for manipulating market prices.

 

Central banks constantly issue fiat money which directly inflates their value. On the other hand, the total supply of bitcoins is limited to 21 mln by the Bitcoin protocol. This creates deficit and as a long term result bitcoin’s value is expected to grow.

 

Note: specific businesses mentioned here are not the only options available, and should not be taken as a recommendation.

 

 

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