There are many potential uses of using the Bitcoin protocol. Its most widespread use today is as a means of digital payments. More and more companies around the world accept Bitcoin as a means of payment (see the map here).
TIP: Before you can use Bitcoin, you need to choose the right wallet. Read about BTC wallets in our article.
As is usual with new technologies, one of the first users are criminals. Due to its properties, Bitcoin has become a widely-used means of payment in so-called dark markets, i.e. illegal e-shops where you can buy drugs and other forbidden items. Bitcoin is, by its very nature, equally accessible to all, so it will not be possible to prevent it from being used in this way. It’s as if we wanted to prevent criminals from using cell phones.
Thanks to its price volatility of Bitcoin, speculators often trade on stock exchanges, and because its price has grown considerably in the past, investors are interested, too. They use it as digital gold, i.e. a value keeper.
Although the price of Bitcoin is experiencing rapid fluctuations, investors like the fact that they can keep bitcoins in their own secured wallets, and there’s no way that they would, for example, go down the drain along with a bank that’s on the brink of bankruptcy. It is similar to the gold we have stashed away at home. Unlike gold, Bitcoin can be sent over the Internet to the other end of the world almost for free and within minutes.
Bitcoin is a popular means of payment in online casinos and gambling as well as for electronic services, such as VPS. Since it knows no boundaries, it can be used for international payments and save a considerable amount of transaction costs.
First and foremost, Bitcoin is trying to provide open and independent alternative to current fiat money. However it has more use cases.
Non-financial uses of the Bitcoin blockchain includes, for example, document verification (the opentimestamps project) or digitization of corporate documentation (the Factom project). Some alternative blockchains and cryptocurrencies (like Komodo or Syscoin) are using security of Bitcoin’s hashrate to become more secure themselves. One of the biggest (almost 40% of BTCs transactions as of 2019) is Veriblock. Thus, Bitcoin’s ultimate security and independent source of truth is demanded by many services and thus provides more utility to BTC network. Bitcoin fork Bitcoin Cash even operates a simple social network, called memo.cash, on its blockchain. However it is not clear, how sustainable this is, given the problems with scalability of blockchains.
By using so-called multisig addresses, you can also create structures in which bitcoins at a given address can be controlled by not one person, but a group of people, each of whom holds a part of a private key.
By using its Script programming language, Bitcoin also enables simple smart contracts. These are, however, much more primitive than what Ethereum allows, for example. Bitcoin prefers safety and robustness to complexity. However, more complex contracts on BTC are created by the RSK project, for instance.
TIP: Help the Bitcoin Infrastructure! Also, read our article on how to operate a Bitcoin ATM.
Benefits of Bitcoin:
Bitcoin is the first successful cryptocurrency that has gained global popularity. All previous attempts failed. Bitcoin, therefore, benefits from its primacy and is the best-known and most widely used decentralized means of payment.
• In the long run, Bitcoin is deflationary. The total number of Bitcoins is limited to 21 million, so it is unlikely to be impaired by the enormous influx of new bitcoins. If Bitcoin demand should rise, the amount of bitcoins will not increase. Instead, the value of Bitcoin will increase. This proves to be useful especially in countries with bad monetary policy.
• Since Bitcoin is decentralized, it does not need any authority to regulate it and it is not vulnerable to the interference and manipulation of governments and central banks.
• Transaction rates and transaction fees are much lower than for conventional currency through bank transfers. This advantage for small amounts and domestic transfers is not considerable. However, Bitcoin works much faster and cheaper in transfers of large amounts and abroad.
• You can choose transactions fees yourself, depending on the priority of the transaction confirmation.
• If you are controling private keys to your Bitcoin address, nobody can arbitrarily take, nationalize, or freeze your bitcoins.
• The Bitcoin code is (especially when compared to many other cryptocurrencies) very simple and robust, and has survived numerous attacks. The aim is to minimize the risks and make the network as decentralized and secure as possible.
Disadvantages of Bitcoin:
Bitcoin’s price is still very unstable, making it difficult to assess its real value. Price volatility makes it more difficult to use Bitcoin and increases risk in the eyes of conservative investors.
Pseudo-anonymity of Bitcoin addresses can encourage illegal exploitation and illegal activity, such as tax evasion, gambling, or circumventing currency controls, for example.
A Bitcoin transaction on the blockchain is irreversible. This means that once you submit it, there is no mechanism that can be reversed (except for the recipient’s request to return it).
If you lose a private key to the Bitcoin address, it’s not the same as if you lost your bank account password. No one will be able to reset your access or change your password, and you have definitely lost your bitcoins on that given address. Responsibility is entirely yours.
In some situations, Bitcoin becomes slow and expensive, and the blockchain network may be congested. But the solution to this problem is already being worked on.
Since 2009, when it was launched, the Bitcoin Protocol has made tremendous progress in its adaptation and utilization. However, it is still an experimental technology, so success is not guaranteed. Further development over the next couple of years will show whether the most successful cryptocurrencies will become a solid part of the global financial system, find other “non-financial” uses, or whether they are predestined to remain as a marginal affair, or toy for technological enthusiasts and libertarians.