Cryptography combined with file-sharing technology changes the game
The development of cryptography science and file-sharing technology made the invention of Bitcoin technology possible. This Internet-protocol is a groundbreaking brainchild leading the way for future payment systems. Using cryptographic keys allows two individuals to send payments directly to each other without a middleman.
The most important invention of Satoshi Nakamoto was the block chain ledger. This is the usage of the whole network to confirm transactions. It eliminates the requirement for a third-party central counterparty that needs to control transactions while at the same time eliminates the risk of double spending. Block chain functionality is the driving force behind all cryptographic payment systems that have evolved based on Bitcoin technology.
Digital payments have competitive advantage compared to existing systems
First of all, digital cash (e.g. bitcoin) provide a low-cost alternative for transferring money. Instead of relying on banks or brokers, the money can be transferred directly between two market players. This basically eliminates the big fees normally charged for transfer services. This issue is not only related to banks. The huge payment processing companies like Visa, MasterCard or PayPal still charge about 3% for every transaction (plus 2-8% for foreign exchange depending on the currency).
Much lower cost and much faster than wire transfer
Secondly, the convenience and speed of transfer reduces the time needed to receive funds literally to seconds. In cases where reliable proof of confirmation is needed, it still only takes a few minutes. With bank wires, it can be several days or even weeks before the funds finally reach the destination recipient. Very often international payments from developed markets to emerging markets take as long as 2 weeks.
No chargebacks reduces the risk of consumer fraud
Thirdly, high security and the absence of easily readable information bring down the risk of identity theft. Using digital cash offers benefits to consumers who are secured against fraud and also to merchants who don’t have to safeguard payment information like credit card numbers. Additionally, usage of digital currency eliminates the risk of chargebacks for merchants and therefore reduces the risk of consumer fraud.
Protection against industrial espionage by foreign intelligence agencies
Moreover, the NSA seeks to build super computers capable of cracking most types of encryption. Having said this, it is vitally important for international businesses to protect their interests against industrial espionage. Utilizing cryptography for corporate cash management is a safe bet to stay ahead of the game. If your government and your financial institution can't protect your intellectual property or your legitimate financial operations, you can do it on your own by taking advantage of digital money.
Financial inclusion to disadvantaged segments of society
All the above benefits bring value not only to e-commerce payments and multinational corporations, but also to the financial service industry. The peer-to-peer nature of digital money provides benefits to billions of people across the globe who are simply cut off from the existing payment networks, e.g. who cannot open a bank account or get a credit card.
Finally, digital cash is just the beginning of whole new era of innovations. The concept is currently being expanded to transmitting digital assets such as securities, contracts and ownership rights.