So one transaction of 1.5 bitcoins is sent to E and the other 0.5 bitcoins A sends it to himself, whereas he himself is creating the “change (small denominations of money)” for the transaction as opposed to the buyer in the traditional process.
Advantages and Disadvantages of Bitcoin
Advantages
a) User controlled: The users are in complete control of their money. Bitcoin gives us the freedom to transfer any amount of money at any point of time in the world.
b) Small/no fees: Payments can be made through Bitcoins for either no fees or extremely small fees as compared to the 2-3 % charged by credit cards.
c) Secure: It provides protection against identity theft. Bitcoin transactions do not contain personal and sensitive information about the user, thereby protecting his/her identity. Bitcoin transfer can be controlled and authorized only by the private key of the user. The private key is used to sign transactions and the signature prevents the transaction to be altered by anybody once it has been done.
d) Transparent: Bitcoin money transfer system is completely transparent and neutral. Bitcoin money supply is readily available on the block chain and can be seen and verified by …show more content…
b) Price volatility: The decentralized nature of Bitcoin can act as a blessing as well as a curse. With rising demand the value of Bitcoin will rise rapidly. However if there is a surge in Bitcoin spending i.e., a large number of investors suddenly decide to sell their Bitcoins, its value will fall rapidly. This fluctuation in bitcoin price can lead to a large number of investors incurring losses.
c) Illegal activities: The anonymity maintained in recording the transactions in block chain can encourage illegal activities like tax evasion, weapons procurement, etc. In 2012 around 4.5% to 9% of Bitcoin transactions were estimated to be for drug trade on a a drugs market called Silk Road.
d) Risk: Bitcoins of a user can be controlled by the private key only. If he/she loses the private key, then all the Bitcoins of the user are lost. If the wallet file in the system gets corrupted or the hard drive crashes, then all the Bitcoins are lost and they cannot be recovered. If User1 gets hold of the private key of User2, then, User1 can control all the Bitcoins of