A fiat currency is used as a medium of exchange because it is backed by a government that issues it. There are over 180 different fiat currencies in circulation worldwide. Well-known examples include the pound sterling, the euro, and the US dollar.
What gives fiat currency value is ubiquitous acceptance in its country of origin. However, using it in the economy has some drawbacks, such as inflation risks, counterfeitability, central authority and more.
Merchants (over 100,000+) and consumers are now using bitcoin as a medium of exchange for goods and services because it offers several advantages over fiat currency.
In this blog, we will look at what makes bitcoin valuable and its benefits to an average consumer and a merchant over fiat currencies.
Why do bitcoins have value?
bitcoin’s value comes directly from the people who accept it as a payment method and also from the features of money that it possesses as such.
bitcoins don’t exist in any physical form, they are digital currencies; so you can’t destroy, degrade, or break them. They are literally cryptographic codes that are not liable to any physical harm. Even if a bitcoin user loses his or her private keys, that does not destroy the bitcoins in that wallet.
For any currency to be valuable, it must be scarce. So bitcoin’s supply is limited to 21 million bitcoins, and once it hits that amount, no new bitcoins will enter the market. The supply of bitcoin reduces every after four years, which makes bitcoin valuable.
bitcoins are highly portable, they can be transported on a flash disk, paper, and also stored online. Besides, you don’t need an intermediary to send your bitcoins, so all it requires is just a scan of a QR-code or a click of an online wallet to send and receive money globally.
Fiat money has fungibility because there is no difference between a one-dollar bill and another. Also, bitcoins have the same value regardless of who owns them. I.e., One BTC in my wallet has the same value as one BTC in another person’s wallet.
For any form of money to be useful, it has to be divisible. Divisibility ensures that money can be divided into smaller units that can be used in exchange for other goods of different values. A single bitcoin is divisible by eight decimal points, and the smallest unit of a bitcoin is termed as a satoshi or sat. Therefore, one satoshi is equivalent to 0.00000001 BTC.
Since bitcoins are digital currencies, you cannot counterfeit them, however, there is a risk of double-spending — spending the same money twice. But, with the bitcoin network, it is literally impossible to double-spend since it leverages the bitcoin blockchain. So when you make a transaction, all the nodes are aware of that transaction.
Benefits of using bitcoin as a medium of exchange.
Bitcoin is literally the most transparent network in the world. All bitcoin transactions are public, traceable, and indelible. With the bitcoin blockchain, it is impossible to delete a transaction in an attempt to hide it. Besides, you cannot add fraudulent transactions on the blockchain; it is hard to cheat.
Ultimate freedom in payments
Bitcoin transactions are borderless; you can receive and send money anywhere around the world. Actually, it also doesn’t matter if it’s a public holiday or late at night. Bitcoin payments can be made at any time with just a click of a bitcoin wallet.
Personal information is discreet
Several merchants and consumers are financially hurt by the debit card frauds that happen always due to breaches in data security systems. So with bitcoin payments, the merchant doesn’t get any confidential information from the consumer, so it is difficult for crooks to steal money from the sender in the future.
Low transaction fees
Payments made using digital currency save merchants from paying processing fees. Also, consumers get to pay low transaction fees because there are no intermediaries or third parties that charge a percentage for that digital transaction.
Wire transfers usually take a week for a payment to be settled. However, for bitcoin payments, it only takes a few hours for a transaction to be confirmed.
There are over 40 million merchants in the world and for bitcoin to have only 100,0000 merchants accepting it as a payment method is a retract for the bitcoin network. However, I think with all the benefits bitcoin offers over fiat currency, merchants should be able to provide relevant discounts and loyalty rewards to consumers who pay via bitcoin as it will lead to the mainstream adoption of the network.