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What Is Cryptocurrency?


It is an ordinary electronic currency. You can buy and spend it. You can store it in some electronic wallet. You can accumulate, invest and convert it into other forms of values.

Yes, it differs from classical electronic payment systems. Its main difference is that it has many service centers, which are managed by different companies. Even you can create such a company that will maintain the cryptocurrency service (become “miner”). A usual classical electronic currency has only one center. That is, there are many data centers, but only one vertical power structure.



Namely, this technical feature makes cryptocurrency different from classical electronic currencies. However, we will not focus on describing the technical aspect of the cryptocurrency. A huge number of good articles have already been written about this:

Forbes: How bitcoin works?
Coindesk: How do Bitcoin Transactions Work?
Lifewire: What Are Bitcoins?
99bitcoins: Know how bitcoin works.

Let’s see cryptocurrency with the eyes of an ordinary, i.e. mass user. Say, with the eyes of a housewife with two children.

It is unlikely that she will delve into the technical nuances. She is only interested in practical use in everyday life.

At present, there are more than 700 different cryptocurrencies, but all of them are principal copies of Bitcoin cryptocurrency (i.e. they basically operate in the same way, but differ in some particulars). Bitcoin is the first and the most widespread cryptocurrency, its share of capitalization in the total amount of cryptocurrencies as of April 2017 makes 70%. Therefore, we choose it for comparison with classical electronic currencies.

Let’s compare Bitcoin with PayPal and Perfect Money. We chose these two currencies, because, as we learn later, Bitcoin combines the best sides of these two quite different classical systems.

PayPal is the most popular classical electronic currency. It is completely legal, reliable, but at the same time significantly limits the user’s freedom.

Perfect Money is also a classical, but little-known, electronic currency. It gives users the freedom to perform various financial transactions, but at the same time, the level of its legality leaves much to be desired. You can read our review of Perfect Money.



In the table, we highlighted in green those qualities, which we consider positive. Negative qualities are highlighted in pink.

 

1. Centralized Currency Control


Unlike classical electronic currencies, as we have already said, Bitcoin cryptocurrency has no single control center. Therefore, on other websites you can often find information that Bitcoin is a decentralized currency.

Nevertheless, it is not quite the right statement. Bitcoin has a control center, but it is not as pointy as in the case of PayPal or PerfectMoney. If the relevant companies’ offices represent the control center of these two electronic currencies, then Bitcoin is managed through a community of programmers who issue a software for cryptocurrency service and through a community of miners who are engaged in Bitcoin network maintenance.

Under certain circumstances these communities, in particular in the presence of sufficient computational performance, can take full control over currency in their own hands.

Consequently, it is impossible to speak about complete decentralization of the currency. More likely, it is much more decentralized, than the classical electronic currencies.

2. Anonymity when Using an Account


With a competent approach, Bitcoin can be used almost completely anonymously. The main thing is to create new addresses for new transactions and make sure that the addresses, which you use, are not associated with you. PayPal severely limits anonymity. If you want to make transactions for large amounts, you will have to undergo verification and provide your documents.

The Perfect Money’s level of anonymity is comparable to what Bitcoin can offer you. However, you should understand that Bitcoin is essentially anonymous, while PM’s anonymity is given to you in the extent that it is beneficial to PM owners. That is, one day they may decide to carry out complete verification of all accounts without exception.

It is theoretically impossible to do this with Bitcoin.

3. Maximum Transaction Limits


The amounts of transfers in Bitcoin system are limited only to the number of coins that are in circulation. That is, you can easily store $ 15 billion on your wallet.

The PayPal payment system has restrictions on transfers and on the storage amount.

Perfect Money has no restrictions, but it is risky to keep large amounts of money in the system.

4. Transaction Speed


This is perhaps the most unpleasant circumstance in using Bitcoin cryptocurrency. After you make a transaction, it takes some time for the distributed network to confirm that you had the mathematical right to complete the transaction. While PayPal and PM have one database, and therefore checking the possibility of making a payment occurs instantly there.

5. Account Blocking Probability


Your Bitcoin wallet, if you run its full version on your computer, cannot be blocked. The entire Bitcoin network can be sharply devalued or be down for some reason, but your individual account cannot be deleted. This is one of the main advantages of Bitcoin.

Administration of PayPal or PerfectMoney may simply block your money one fine morning. Moreover, PM can do this without giving any reason.

6. Accessibility for Residents of Different Countries


Bitcoin, if desired, can be used even by extraterrestrials. PM also does not limit the range of its users. The PayPal payment system limits the range of countries that can use the system.

7. System Collapse Probability


Any operating system is subject to collapse probability. Any payment system, the Holy Roman Empire, or the solar system.

The collapse of any system is a matter of time and probability relative to the current moment of probability.

Bitcoin has several risk factors, but above all, these are economic risks. They are connected primarily with possible hardforks of Bitcoin. Sabotages are also possible from those who own most of the computational power structure of the system. Therefore, the probability of Bitcoin ecosystem destruction exists.

Forecasts about that Bitcoin will cost USD 10,000 in ten years are as likely as the fact that this cryptocurrency will cease to exist by this time.

The probability of PayPal payment system disappearance is low, thanks to the centralized management, which is a disadvantage in other respects.

The probability of PerfectMoney payment system disappearance, in our opinion, is much higher, than that of Bitcoin. We wrote about this in our review.

8. Level of Trust in the System


User’s level of trust in PayPal system is slightly higher, than in Bitcoin system, when it comes to legal users who have nothing to hide.

People who use electronic payment systems for seedy dealings are, of course, more likely to use Bitcoin or PM. However, this does not mean that they trust these systems more. The point is that Bitcoin is essentially an uncontrolled payment instrument and is ideal for making anonymous payments.

Where there is freedom, there is anarchy. Where there is anarchy, there is crime. Therefore, we unfortunately have to admit that cryptocurrencies, and in particular Bitcoin, have some involvement in crime.

9. Level of the System’s Distribution/Popularity


Acceptance of payments through Bitcon is gaining momentum and is rapidly increasing. Perfect Money is narrowly known by adventure-seekers of high-risk investments. At present, the Perfect Money payment system is decreasing. This is obviously, because Bitcoin offers the same freedom and absence of control for criminal figures and a pleasant bonus is the guarantee that your account cannot be blocked.

10. Currency Volatility


We did not add this point to the table, because it is impossible to say unequivocally whether the high currency volatility is a plus or a minus.

PayPal and PM, since they are pegged to usual fiduciary currencies, have very low volatility.

Bitcon is a highly volatile currency; its value in relation to the US dollar during the day can fluctuate within 10% or more.

Is it bad or good? You can increase your investments in cryptocurrency, if it sharply increases in price, but you can also lose a lot. Therefore, we will not evaluate this quality from the good-or-bad point of view. You should simply keep in mind this nuance.

Our Conclusions


Cryptocurrencies certainly have a future. They can offer two qualities, which tend to get along badly together. On the one hand, it is freedom of use and anonymity; on the other hand, it is reliability and legality.

Currently, cryptocurrencies, including Bitcoin, are still in a formative stage.

Long-term investments in cryptocurrencies for simply earning money cannot prove their value, because the rates of cryptocurrencies are subject to wide fluctuations.

But those obvious advantages, which cryptocurrencies and, in particular, Bitcoin give, are available to you today.


Most popular resources:

Bitcoin Wallets
Bitcoin Social Groups