Bitcoin has several desirable qualities that make it an attractive option to today's paper fiat currency. This article will kick off a series focusing on the unique characteristics and qualities that make Bitcoins stand out as a leader of currencies.
Bitcoin: Third Party Risk
If I hold an IOU, that IOU is only as good as the person or company behind it. If they do not have either the means or the desire to pay it back, your IOU is worthless. If you hold a bond or note from a company or government, you have third party risk. If you own a brokerage account and that broker holds your title deeds to companies that you have invested in, you have third party risk. You rely on the broker to make good on his promises for you to have that ownership. Recently, MF Global customers found this out the hard way losing Billions in the aftermath of the Bankruptcy.
Even cash in your bank account has third party risk. If your bank is insolvent, you will not get your money short of a government bailout. Or, as the people in Greece, Spain and Italy are finding out, their ability to withdraw their money is limited by a third party. The IMF together with the European Union Central Bankers began confiscating money directly from private bank accounts in Cyprus. Bank accounts with balances over $100,000 were robbed by up to 40%, while every bank account was subject to a capital control of only withdrawing $200 Euro per day.
Bitcoin comes with no Third Party Risk. Again, you could store cash under the matress and pay your plumber when you see him and there would be no third party risk. But in a globalized, Internet world making routine financial transactions requires a lot of third party risk...until now.
Bitcoin offers the opportunity for individuals to take full control and responsibility for their finances. Bitcoin and Bitcoin Services offer the full gamut of financial transactions, in a simple and secure environment. There is no third party that can shut off access to your Bitcoin wallet. You can transfer and subdivide your Bitcoins into an unlimited set of wallets. You can change the location of your Bitcoins every single day or not at all. The point here is that unlike any other instrument before it, BItcoins offer the opportunity to eliminate third party risk entirely.
Because Bitcoin is its own global payment system as well, there is no third party risk. You do not need to pay anyone to store it, and you do not need to pay anyone to transport it. You can send a million dollars across the globe and store it there for a year, without involving a single other person in the transaction. Bitcoin gets an A+ for no third party risk.
This is not to say their isn't any risk at all, as you need to be educated on how to properly secure your wallet. Bitcoin's removal of third party risk makes is one of the most desirable characteristics of Money.