What are the problems with normal currency that may be solved by using Bitcoins?

Question

I've watched the video on weusecoins.com and read some of the FAQ, read information about wallets etc, but I still can't find any information about why we should use Bitcoins? What are the issues with normal currency?

I know that this is a very beginner question.

The only things I can find so far are:

• It's not controlled by a government or company. But what further advantages of this are there?
• Open source, but why should currencies be open source?
• It has very good security, but don't banks spend billions on security as well?
• BTCs are limited in number: Is this to prevent artificial inflation of currency?

Please note: This is not some kind of horrible troll question, I'm genuinely trying to learn about BTC.

Answer 1

Paper fiat currencies issued by Governments could work perfectly well, provided they used the money for the benefit of society. IE, if they had the discipline of the Bitcoin code, we wouldn't need Bitcoin, the trouble is, Govts become corrupted, they are tempted to fund projects they can't afford or otherwise should not get involved in (wars) by printing money. Printing money is a phrase we see bandied around a great deal, but if Govts only printed new money to pay for their pet projects, it wouldn't be so bad, what compounds the issue is that they BORROW this extra money from Private international Bankers who simply conjure the money out of thin air. Taxes against the People are required to pay back this totally unnecessary Borrowing. For more on this goto youtube and search 'Bill Still' 'the secrets of OZ' 'fiat money' 'fractional reserve lending' More money in circulation means the money you have earned is devalued through inflation. Yes, you may still have $1000 in the Bank, but it's purchasing power is being devalued, it is becoming worth less because of all the extra money being printed (borrowed) and put into circulation. Another problem with central control is the issue of Liberty, currently, as in the case of Julian Assange, the state can freeze your assets, switch off your access to banking. This is potentially very sinister, do some research and you will see that totalitarian Govts often shut off access to money, food and water as a means of controlling large numbers of people. Bitcoin addresses several of these important issues, firstly, it's a limited supply, whereas there is virtually unrestrained money printing going on, and there might even be new Gold and Silver deposits found, there will NEVER be more than 21 Million BTCs. These are divisible up to 8 Billion times so BTC has the potential to serve as a Global currency. There's no central control, Your Bitcoins cannot be blocked as they are sent person to person. As people buy in, driving the price higher, instead of buying a meal for 1 BTC we will be using fractions of a BTC, a whole BTC becoming worth a considerable amount of money, this is called deflation, this is the opposite of what we have now with inflation devaluing our currency.

Pensions too could be transformed by this, simply work 20 to thirty years, buying BTC allowing them to deflate (increase in value) to a sizeable Nest egg, then retire when YOU want to., Currently, there's money pouring into Bitcoin, people say it's a speculative bubble that may eventually crash. I believe though that Bitcoin is a Global asset, it is a peer to peer, anonymous version of Western Union, so if Bitcoin has no value then Western Union has no use to society either. I think the thing that will determine bitcoin's ultimate success is if underneath the speculation, real industry and businesses can spring up using BTC. For those early adopters who've gained, probably the best way to preserve those BTC Gains is to take 1% of your gains and help young BTC industries to flourish.

Answer 2

One answer is that it makes many things that are hard to do with fiat money trivial. Including:

• Send money electronically from one entity to another without the need for an intermediary. (Beneficial because those intermediaries often charge fees as well as imposing their own terms and conditions).

• Enable more anonymity in electronic transactions. (Note that this does have advantages and disadvantages.)

• Provide a means of exchange that largely ignores state borders. (Again, this has advantages and disadvantages. At least from the perspective of those states.)

• Provide for more sophisticated transaction types that can be currently accomplished easily. One example being contracts .

Another answer is that a digital system of currency has the potential to make exchange easier and cheaper. Much of the cost of fiat currencies has to do with legacy infrastructure and regulation. Note that this doesn't necessarily have to imply cryptocurrency like Bitcoin, it could just be digital accounts like Dwolla, but Bitcoin also has these benefits. And, unlike Dwolla/Flooz/Paypal and other non-crypto digital transfer systems, Bitcoin doesn't make this ease of transfer dependent on the survival of the intermediary. (Flooz intentionally included in those examples to show the hazards of the non-crypto approach.)

An example of that is that I just sent a donation to a developer. Just 15 mBTC. If I had used Paypal, or iTunes, or Stripe, the merchant fees would have meant that most of my donation went to the merchant, not the developer. Similarly, my coffee roaster has a sign up saying that they prefer cash (and won't accept cash for transaction under $10) because the fees from their credit card vendor are too onerous. In a world of digital money, I find this absurd. Cryptocurrency is a way that we can drastically reduce these fees.

Answer 3

Not being controlled by the government means that the government can't change its value without consent of the people, nor sieze it. In Cyprus, this is happening right now. Also, it's more anonymous. And because the government doesn't (can't) regulate it, it can be transferred faster.

Open source means that others can inspect it and prove that it is impossible to steal or control, by the government for instance.

Banks spend a lot on security but bitcoins might provide the same or better security for less money. I worked out that the cost of all the electricity of the miners is around 5000USD/second right now. That sounds like a lot but imagine that it replaces the cost of the security of all banks of all the world. JP Morgan's operating expenses for last year, according to the income statement, came out to about 2000USD/second. And that's just one bank. All of them together, way more than 5000USD/second. In time, the cost will stabilize to the value of the security that we're getting.

BTC (BC is not the right acronym, get used to BTC) are limited to prevent inflation. In fact, it guarantees deflation because society is creating value all the time. This is a controversial decision.