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A peer-to-peer digital currency, Bitcoin was created in 2009 by Satoshi Nakamoto (anonym), a computer programmer. The process which is based on open source (free to public view) does not involve a third-party delegate in between, such as PayPal or Visa. That the system is private with no traditional financial institutions involved in the transactions and with an entirely decentralized network sets it apart from the previous versions of digital currencies.

While some experts contend the fact that Bitcoin can be best perceived as a speculative investment, its shares have been fluctuating as well from a dip in January 2014 at $177 to a jump by April 1, 2015 to $242 per Bitcoin.

The fact that the crypto currency became victim of fraud and hackers easily in 2014 with Mt. Gox declaring bankruptcy after the $460 million of Bitcoins reported to be filched have raised questions on its credibility.

There have been concerns on its application in unlawful money transfers based on the decentralized model and level of ambiguity. Even though not many facts are clearly known about Bitcoin, a Congressional Research Service Report in 2015 highlights its issues and other details regarding the currency. According to the information that we could gather following are the benefits and the prejudice of Bitcoin.

Benefits of Bitcoin

  1. There is no opportunity of Bitcoins getting seized as there are numerous disposable transaction database, unless the user is forced to transfer the Bitcoins to an anonymous user by some
  1. Low transaction cost is another reason that makes Bitcoin popular as an exchange method. It does so as it functions without a financial institution to act as a third party for any financial dealings.
  1. The Bitcoin system automatically archives a complete list of all transactions in every user’s encoded identity ensuring high levels of security and privacy for all transactions.
  1. The fact that Bitcoin is not regulated by Government and is not connected to currency it is not affected by inflation.
  1. There will be a limited supply of Bitcoins following the model of gold supply, and it can reach at a maximum supply level of 21 million. This will help avoid its manipulation by the central banks or the government.
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Prejudice of Bitcoin

  1. Bitcoin suffers from a highly unstable price since it is valued on supply and demand. While the currency was at a soaring high in December 2013 at $1100, it dipped majorly in January 2015 at $177. This volatility brings Bitcoin into the category of commodity rather than a currency.
  1. Since the government is apathetic towards promoting Bitcoin as the currency is perceived to be something that can aid tax evasions or illegal transactions. Based on this government is trying to find regulatory steps for the currency which may raise the transaction costs of Bitcoin.
  1. The currency can be observed as an unappealing option to hold or grow wealth. It’s due to the fact that neither is it mandatory for the debtors to acquire it nor is it customarily backed up with a legal base except a computer program.
  1. Even though duplication of Bitcoins is not possible externally, the system rather is exposed to cyber-attacks and other security issues. For example, in one of the recent cases 19000 Bitcoins, priced at a whopping $5 million, were stolen in a huge European Bitcoin exchange, named Bitstamp. It was followed by other incidences in 2011 and the notable one being the Mt. Gox in the year 2014.
  1. The digital wallet on the personal computer or the mobile phones and the digital keys in which the users Bitcoins are stored (purchased or reserved), have the risk of getting lost, flinched, or flawed.
  1. The prolonged waiting time of 50 minutes before the user can receive a payment confirmation proof can be a big hindrance while he/she is dealing with an ambiguous party, and interested double spending.

References –

http://journalistsresource.org/studies/society/internet/bitcoin-virtual-currencies-key-technical-legal-issues

http://www.zerohedge.com/news/2013-12-05/bitcoin-cost-benefit-analysis

http://cs.stanford.edu/people/eroberts//cs201/projects/2010-11/DigitalCurrencies/advantages/index.html

https://www.fas.org/sgp/crs/misc/R43339.pdf

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