Bitcoin is digital currency. Instead of reaching into your pocket or wallet for, quarters or dollars to pay for a product or service, you pay for them over the Internet. Bitcoin exists exclusively in cyberspace.
Bitcoin users don’t write checks or use a credit card, and therefore bypass an intermediary such as a bank in any transaction. What were formerly in-person transactions, person-to-merchant transactions or merchant-to-merchant transactions are now enabled to become peer-to-peer transactions. Merchants who honor bitcoins benefit because they’re spared a fee which customarily runs between one and two percent.
Successive participants in bitcoin transactions are recorded in a public ledger known as a block chain. Each participant is prevented by block-chain software from altering previous bitcoin transactions in any way.
The benefits bitcoin offers through the elimination of the need for banks to clear funds are momentous. In fact, the use of bitcoin eliminates the need for any fund-clearing intermediary. The very nature of bitcoin software prohibits fraud or forgery. What’s more, a digital currency transaction provides a virtual guarantee of user privacy. Also, you need no longer concern yourself with the costs of maintaining a checking account or of returned checks.
The time savings associated with the bypassing of an intermediary, especially in international transactions, could likely prove an immense boon to commerce over the next several years.
Particularly since the Great Recession of 2008, banks – particularly big banks – have become worrisome to depositors. In May of 2015, five of the world’s biggest banks were slapped with criminal charges for rigging currencies. Without much fanfare, all five banks pleaded guilty to the charges and collectively paid $5 Billion in fines.
It is extremely telling that one of these banks, JP Morgan Chase & Co., after routinely dismissing bitcoin as “unimportant” in 2015 has now announced in 2016 “Blockchain [the online technology of bitcoin] will be big in everything related to settlement, and not just loans. While it is still early days, the technology looks very good.”
Bitcoin then is highly significant in the evolution of currency. Clearly, big banks have gotten the message and do not want to be left behind. Enlightened by the new bitcoin technology, they are actively searching for legitimate ways to modernize their operations.