Bitcoin is a Digital Currency
What is digital currency?
First and foremost, digital currency is money! Bitcoin is a type of digital currency with meaningful value in the real world, and as such, it can be traded for dollars, yen, or any other global currencies. Bitcoin is typically denoted on currency exchanges as "BTC".
One of the differences between a digital currency, such as Bitcoin, and a physical currency, such as yen or dollars, is that there is no physical manifestation of Bitcoin.
Digital Currencies in the Real World
Online games is one area in which digital currencies are already widely used. Using physical currency, you can purchase virtual currency in the game's world. You can then buy items in the game using this unique currency. This type of digital currency is valuable in the realm of that online game.
Certain online websites also offer a similar type of digital currency, allowing you, for example, to purchase 1,000 "points" in exchange for 1,000 JPY. Your points can then be exchanged for different products and services on that website. That digital currency has value within the confines of that website.
In this sense, Bitcoin is similar. You can purchase products or services at any shop or website that accepts Bitcoin.
What sets Bitcoin apart?
If so many digital currencies already exist, what makes Bitcoin special? The truth is, Bitcoin is fundamentally different from these types of digital currencies in many ways.
Digital currencies which are created by companies as part of their gaming or e-commerce sites are targeted at improving customer retention, and increasing profits.
Bitcoin, on the other hand, was created as a digital currency to facilitate payments anywhere, just like dollars or yen.
Bitcoin aims to be a daily use currency that can be used all over the world. Rather than using physical bills or coins, Bitcoins are stored in digital wallets on your PC or smartphone, and can be used to buy products and services globally.
While we are still in the early stages, given Bitcoin's inherent convenience, safety, and global nature when compared to government currencies such as dollars or yen, Bitcoin is poised to become the digital currency of the next generation!
Bitcoin and Electronic Money
What is electronic money?
"Bitcoin" and "Electronic Money" are similar concepts, but in reality there are some important distinctions. Below, we will outline some important differences between Bitcoin and electronic money.
Electronic money is a method of settling payments in a specific currency without using bills or coins. Settlement methods include online or contactless payment, which are often used at convenience stores or when paying your train or subway fare.
Many of us have already used this form of payment in our daily lives. Electronic money is convenient and quick, as there is no need to physically take coins or bills out of your wallet.
Bitcoin also has no bills or coins, and enjoys all of the above benefits, such as speed and convenience. In this sense, it is natural to think of Bitcoin as electronic money.
So, is Bitcoin electronic money?
Yes, but Bitcoin is also much more.
Electronic money is typically used as a means of settling payments only within a specific region.
In Japan, for example, electronic money is used in place of JPY bills or coins. Users must deposit yen to their bank account, or add money at electronic terminals.
This is effectively the same as settling the payment in JPY, whether or not physical currency is used.
With Bitcoin, you do not charge your account, or add money at electronic terminals.
To use Bitcoin, you first need to exchange your existing currency, such as JPY, to Bitcoin. Once you have exchanged your money to Bitcoin, you can purchase products with Bitcoin.
Once you have completed your exchange, Bitcoin and electronic currency transactions are similar - you simply make a payment at a shop or website that accepts Bitcoin. Your Bitcoin will be sent to the merchant, and at the same time an equal amount of Bitcoin will be deducted from your digital wallet.
In conclusion, Bitcoin is currency, just like dollars and yen. Electronic money is a system designed to settle payments without using bills and coins. Therefore, digital currencies do not equal electronic money.
Why should I use Bitcoin?
As there are no banks or governments involved, below are some of the reasons using Bitcoin is an excellent way to perform certain activities, such as money transfers.
Transfers are directly from person to person - there is no intermediary involved
Normally, to send money to a person you are not physically near, you need to use a bank or other money remittance service to facilitate the transfer. Using Bitcoin to send funds, however, is the same as passing somebody cash from your own wallet.
Fees are nearly zero
With Bitcoin, there are no middlemen. This means fees paid to send and receive Bitcoin funds are basically zero, or extremely small. This is a key advantage of Bitcoin, particularly for tiny payments. Bank transfers and credit card payments carry significant fees, making it difficult to effectively send small amounts of money. This limitation can easily affect a business' bottom line.
Due to its ingenious and advantageous structure, settlement fees approaching zero are readily achieved with Bitcoin!
There is no monitoring performed or limits imposed by any third party
As Bitcoin does not require banks or third parties to settle payments, the process is faster, paperwork is not needed, and funds can flow freely.
Further, Bitcoin is global - there is no difference in the unit of currency between countries. There are already many stores and websites around the world that accept Bitcoin today, and as Bitcoin increases in popularity, this number will only grow!
Where is Bitcoin stored?
Bitcoin is stored in a digital "wallet". This is similar to your bank account, where you store your yen or dollars.
Anybody wanting to use Bitcoin simply needs to create a digital wallet. That wallet can then be used to store Bitcoin, send, and receive payments.
The identifier for a Bitcoin wallet is similar to an email address. The wallet ID is a long string of characters.
Due to its length, a wallet ID is very difficult to memorize. Therefore, to perform transactions, a shortened ID or a QR code is typically used.
What are the challenges?
Similar to yen or dollars, settling payment in Bitcoin requires both parties to accept Bitcoin. If one or both parties cannot accept Bitcoin, a payment cannot be made.
As Bitcoin is still in the early stages of development and adoption, this is currently a significant challenge to overcome.