comprehensive term referring to a set of money circulation elements regulated by law in
a country. Virtual currencies were defined in 2014 by the European Banking Authority as "a
digital representative of a value that is not emitted by the central bank or another public
authority and it has not a direct relation to a real currency, but is used by individuals and legal
entities as a mean of exchange and it can be sent, stored and exchanged in an electronical
way." [2] According to [3] "a virtual currency is a digital currency (also called
cryptocurrency) or electronic money that do not physically exist as coins or banknotes. People
use virtual currencies to purchase goods and services online without expending high
transaction fees and charges. The most attractive part of virtual currencies is that they allow
their users to remain anonymous." Among many virtual currencies (for example Bitcoin,
Ripple, Ethereum, litecoin, Dogecoin, Dash, Peercoin, Stellar and others) the most important
and most used currency is Bitcoin. It is also the very first virtual currency, which was created
in the year 2009. The issue of virtual currencies is therefore a relatively new area and for
many people it is still unknown. This article focuses on the virtual currency Bitcoin. Its aim is
to create a complete list of basic advantages and disadvantages of Bitcoin with detailed
descriptions of each. In literature these advantages and disadvantages are described only
realization of business transactions.
1. Virtual currency Bitcoin and basic characteristics of its use
Founder of Bitcoin, acting under the pseudonym Satoshi Nakamoto, defines it as "an
electronic payment system based on cryptographic procedure allowing the mutual connection
of any two parties who are willing to trade directly with each other without the need for
a trusted third party". [4] Bitcoin is a fully decentralized P2P currency (Peer to peer -
a computer network, where the nodes are mutually equal, so there is a central control node
missing) that is independent of any authority with regard to the technical operations, currency
emission and controllership over transactions. Virtual currency Bitcoin can be useful for
making payments between the users through the Internet, while transactions in this currency
are irreversible and, once accepted by the Bitcoin network it is not possible to cancel the
transaction in any way.
Anyone who is interested in making payments via the virtual currency Bitcoin has to
install a so called digital wallet on his computer (or his mobile phone) at first. It is a free
open-source software, whose task is to generate the first Bitcoin address and also subsequent
addresses for every user.
This software wallet can occur in three forms:
computer wallet - installed on a personal computer or a laptop,
mobile wallet - installed on a mobile phone,
web wallet - accessible through a website of the Bitcoin services provider. In this case
there is no installation required on a client device - just a Web browser is needed.
After generating a Bitcoin address it is needed to get some Bitcoins, which will be
available through the digital wallet after their assignment to this address. Bitcoins can be
obtained in several ways, for example they can be bought through Bitcoin currency exchange
offices (Mt. Gox or Bitstamp) or through services like BitInstant. This service allows you to
transfer funds between money changers and it supports different payment mechanisms. All
transactions are carried out through the Bitcoin network, where they are stored publicly and
permanently. All transactions and the Bitcoin balance on a specific Bitcoin address are
therefore visible to all other members of the Bitcoin network. For this reason, experts often
recommend the payers using Bitcoin to create a totally new Bitcoin address for every single
transaction in order to ensure privacy and increase of security. It is possible to pay via
Bitcoins only in companies that support this type of payment. It works so that such a company
sends its Bitcoin address to a given payer who has to transfer the required amount of Bitcoins
from his digital wallet. All transactions made with Bitcoins are stored in a publicly available
statement, referred to as "a block chain". The block chain is useful to verify whether the
payer actually has the required amount of Bitcoins available and it was not a trick. This also
has to prevent the multiple use of the same amount of Bitcoins for different transactions. [8]
Virtual currency Bitcoin has a deflationary nature, which means that the total amount
of Bitcoins is known in advance and final and this ensures that no one can create more money
and devalue the currency as it happens when more money is emitted by a central bank. The
final amount of Bitcoins that can be emitted to the market is determined to 21 million BTC
(Bitcoins). [6] On February 6th, 2016 there were 15 176 825 BTC in circulation. In addition
to that approximately 3600 new BTC are being harvested every day. Every four years, the
number of new Bitcoins emitted (i.e. harvested) daily will be reduced in half. In the near
future, this will happen in 2017. The whole system of Bitcoins emission is designed in such a
way that by the year 2040, the whole and