You may know what bitcoin is and how to get it, but still be left wondering why you should care. There are quite a few unique properties of the bitcoin protocol which act as appealing reasons to use this cryptocurrency over other traditional currencies. In this section, we’ll look at some of the common reasons people use bitcoin and some of the most common uses of bitcoin overall.
Bitcoin Use 1: Spending Money Privately
One of the biggest pros of bitcoin is its pseudonymous quality (members are identified by the public keys rather than their “real world” identities). For many people, this affords a desired level of privacy that traditional digital payment systems do not. Some examples of situations in which this quality really comes into play include situations in which people are fleeing from abusive partners, desiring controversial health procedures, or operating outside the confines of oppressive governments.
Unfortunately, there is also the flip-side of this privacy; capability for bitcoin to be used for unethical and criminal purposes. The most infamous example of this is Silk Road – the massive “Deep Web” marketplace. Silk Road used the privacy inherent in bitcoin (as well as an anonymizing software called TOR) to allow for users to buy and sell contraband. While the moderators of Silk Road didn’t allow for the sale of goods resulting from or intended to cause the harm or exploitation of other people, users could still illegally purchase contraband such as illicit drugs and forged identity documents. Bitcoin’s relative anonymity could also potentially provide criminals with avenues for money laundering or funding terrorist organizations.
Bitcoin Use 2: Low-Cost Money Transfers
One of the biggest pros of bitcoin is that, compared to other electronic payment systems, it has a very low transaction cost. Bitcoin’s transaction fee is not nearly as costly as the fees on money transfers brokered by banks, credit cards, and commercial software like PayPal.
The low costs of bitcoin transactions are especially advantageous for immigrants sending remittance to their families in their home countries. This is a huge potential demographic for bitcoin simply because the remittance transfer industry is quite large (about $542 billion was transferred globally in remittance flow in 2013).
International transfers can be extremely expensive; in fact, according to the World Bank’s report on Remission Prices, the global average fee for such remissions was 7.72% during the first quarter of 2015. Also, such remittances can take significant amounts of time to be verified by the brokering financial institutions.
Bitcoin allows immigrants to send cheap, practically-instant remissions. As of April 2015, the average fee per transaction was 0.000155 BTC (at the time, approximately $0.04 per transaction). The average time between transaction blocks was about 9.11 minutes. To find the most current updates on all of the above statistics and more, visit the Bitcoin Statistics page on Blockchain.info.
Bitcoin Use 3: Day to Day Purchasing of Normal Goods
While the above uses are special-interest uses, the average bitcoin user will simply use bitcoin to normal purchase goods from online (or even physical) retailers. As the bitcoin market size grows, this will become increasingly common – the monetary value of bitcoin will (theoretically) stabilize, consumers will want to spend their bitcoins, and retailers will see the benefits of accepting bitcoin transactions.
This is a positive development for a few reasons. First, the low transaction costs mentioned above are a great incentive for businesses to accept bitcoin payment; merchants can significantly cut their costs by reducing the fees involved in credit card transactions, authorizations, statements, interchanges, and customer service fees.
Second, the unique properties of bitcoin as as currency make it so the new payment system acts as a stimulus for financial innovation; features, such as micro-payments, which are generally not possible in other financial systems create new financial opportunities and drive for new online business models and marketing strategies.
For more information on places at which you can spend your bitcoins, see our page on places to use Bitcoin.
TIP: Where Bitcoin is mostly a payment system, Ethereum is more like a computer. Check out some of the different uses for Ethereum on our main Ethereum page.