Bitcoin doubles up as a means of payment and a store of value. However, it is digitized, and users can only transact it over the internet. Its inventors intended to provide a decentralized payment system that would operate without central control but, otherwise, facilitate transactions like the conventional fiat currencies.
Some people argue Bitcoin cannot serve as a currency for daily transactions because it operates in an unregulated market. According to them, Bitcoin’s decentralization means there is no counterparty to protect users if things go wrong. Other critics also cite Bitcoin’s price fluctuations as a risk to merchants.
However, Bitcoin has several unique qualities that make it an ideal transaction currency. The following article explores the main traits that qualify Bitcoin as a means of transactions and transacting it.
Scarcity is among the main attributes of money that give it value. Governments and regulatory institutions usually induce lack by printing less money and regulating the monetary circulation in traditional financial systems. They mainly use laws and banks to monitor and control transactions within and across their borders.
Bitcoin is decentralized, without any central entity to regulate its supply and circulation. Satoshi Nakamoto capped Bitcoin’s supply at 21 million tokens only, with almost 19 million already created. Based on the Bitcoin protocol, miners generate new tokens at a pre-determined rate. Besides, Bitcoin also undergoes halving that cuts the miners’ rewards by half every four years.
Bitcoin’s limited market supply and halving are the main factors that induce its scarcity. Meanwhile, it attracts higher trading volumes on crypto exchange platforms such as Pattern Trader. The growing demand and declining supply enables Bitcoin to maintain a higher value over time, hence, its viability as a daily transactions’ currency.
An ideal transaction currency should also be counterfeit-proof and, Bitcoin has special measures to achieve that goal. For instance, Bitcoin’s underlying blockchain technology verifies and validates all transactions on a shared digital ledger. The data mainly includes users’ addresses, transacted amounts, and transactions’ times.
The blockchain assigns unique identifiers for every transaction, allowing users to track their activities on the network with the utmost accuracy. Besides, all the validated transactions are encrypted and irreversible. That makes it impossible for users to execute double-spending or use the same tokens for two or more different transactions.
Bitcoin runs on the blockchain, a distributed network that makes it extremely difficult for users and outsiders to manipulate transactions.
Bitcoin is more divisible than fiat money since one Bitcoin is divisible into eight decimal points. Those constituent units are known as Satoshis. On the other hand, several fiat currencies are only divisible into two decimal points for everyday use. Bitcoin’s higher divisibility makes it a perfect digital currency for micropayments. That is why it is increasingly becoming a popular means of payment for goods and services, accepted worldwide.
How to Transact Bitcoin
The above qualities give Bitcoin a significant value proposition while functioning as a transaction currency. However, Bitcoin transactions are different from fiat currencies. Bitcoin users need a crypto wallet, smartphone or desktop, and internet connection to transact. Users can obtain hot wallets or cold wallets based on their needs and goals.
A crypto wallet stores the private keys for authorizing Bitcoin transactions. Many crypto exchanges enable users to buy Bitcoin with cash, credit cards, or bank transfers. Then, you can use the funds to purchase goods and services from merchants or remit payments worldwide. You could also trade your Bitcoin for other assets or hold them in the long term.
Although Bitcoin is a decentralized and volatile digital currency, its scarcity, divisibility, and enhanced security make it a reliable means of everyday transactions.