7726 / What are some of the advantages and disadvantages of using bitcoin or other virtual currency?

As with any other type of transaction, there are advantages and disadvantages to using bitcoin or other virtual currency as a method of payment. With bitcoin, transaction costs for transferring the virtual currency can be lower than costs charged by a financial institution or credit card company. Further, bitcoin can be transferred internationally with few complications, and without many of the fees that can apply when converting currency.

Bitcoin or other virtual currencies can also be useful in developing countries that lack a secure banking system or stable currency. As discussed below, bitcoin can be volatile, but it is also possible that the virtual currency will be less volatile than the currencies existing in many developing nations.

Despite this, individuals should be aware of this volatility issue. Unlike United States currency deposits, bitcoin and other virtual currency value is not protected by federal deposit insurance. Bitcoin and other virtual currencies are also not universally accepted—many retailers do not accept bitcoin as valid payment. Although regulation is evolving rapidly, bitcoin is currently not strictly regulated, meaning that it may be difficult to challenge suspected fraudulent transactions and security may become an issue. This lack of consumer protection has made it difficult for bitcoin and other virtual currencies to enter the mainstream as a mode of payment.