Thursday, June 07, 2012

What does really set Bitcoin apart?

Bitcoin is a pseudonymous, decentralized electronic currency, and it has been designed in such a way that it functions similarly to physical commodity money, such as gold or a fiat currency like the Euro.

Bitcoin shares most of the properties that 'good money' should have:

Tux logo with Bitcoin
  • Divisibility: money should be easily divisible into arbitrary units of value in order to handle all sizes of transactions.
  • Durability: in order to be a reliable store of value, money must stand the test of time.
  • Fungibility (interchangeability): each unit is identical to every other unit. One kilogram of gold is equivalent to another one.
  • Scarcity: it holds its value and does not steal value through arbitrary inflation or deflation.

These are all interesting properties that we usually take for granted, but they are not the only ones. In fact there are some other 'features' that really set bitcoin apart:
  • No chargebacks: irreversible transactions after an hour.
  • Low transaction fees: most transaction fees are free of charge, or nearly so and they will be kept low forever.
  • Pseudonimity: bitcoin restores privacy to electronic payments.
  • Openness: The bitcoin project itself is open souce. The protocol and the code is open to public scrutiny and analysis.
  • Decentralization: bitcoin puts us in control of our own money, no need to trust in financial institutions or issuing authorities.

Nobody knows if bitcoin will be able to survive in the long term, but right now its appealing characteristics makes it a perfect choice for international trading.

1 comment:

Ramon said...

Great observations.

One additional difference is that Bitcoin is infinitely divisible, with minor modification to the protocol. That satisfies the Triffin dilemma, allowing a single currency to successfully work as both savings and a transaction currency.

Post a Comment

Popular articles