Bitcoin: What Is It, and Is It Right for Your Business?

It’s no actual coin, it’s ” cryptocurrency ,” an electronic form of payment that is produced (“mined”) by lots of people worldwide. It allows peer-to-peer transactions instantly, worldwide, free of charge or at very low cost.

Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and introduced it in ’09 2009. His true identity remains a mystery.

This currency is not backed by a tangible commodity (such as for example gold or silver); bitcoins are traded online making them a commodity in themselves.

Bitcoin can be an open-source product, accessible by anyone who’s a user. All you need is an email address, Internet access, and money to begin with.

Where does it come from?

Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and looks for a specific data sequence (“block”) that produces a particular pattern when the BTC algorithm is put on it. A match produces a bitcoin. It’s complex and time- and energy-consuming.

Only 21 million bitcoins are ever to be mined (about 11 million are currently in circulation). The math problems the network computers solve get progressively more challenging to help keep the mining operations and offer in check.

This network also validates all the transactions through cryptography.

How does Bitcoin work?

Internet surfers transfer digital assets (bits) to each other on a network. There is no online bank; rather, Bitcoin has been described as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to another person who wants in. Anyone can perform this, anywhere in the world.

You can find smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.

How is Bitcoin valued?

Bitcoin is not held or controlled by a financial institution; it really is completely decentralized. Unlike real-world money it can’t be devalued by governments or banks.

Instead, Bitcoin’s value lies simply in its acceptance between users as a form of payment and because its supply is finite. Its global currency values fluctuate according to supply and demand and market speculation; as more people create wallets and hold and spend bitcoins, and much more businesses accept it, Bitcoin’s value will rise. Banks are actually trying to value Bitcoin plus some investment websites predict the cost of a bitcoin will be thousands of dollars in 2014.

What are its benefits?

There are benefits to consumers and merchants that are looking to utilize this payment option.

1. Fast transactions – Bitcoin is transferred instantly on the internet.

2. No fees/low fees — Unlike credit cards, Bitcoin can be used for free or very low fees. Minus the centralized institution as middle man, there are no authorizations (and fees) required. This improves profit margins sales.

3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who is the only one who is able to receive it. The network knows the transfer has occurred and transactions are validated; they can not be challenged or taken back. This is big for online merchants that are often subject to credit card processors’ assessments of if a transaction is fraudulent, or businesses that pay the high price of credit card chargebacks.

4. Data is secure — As we have seen with recent hacks on national retailers’ payment processing systems, the web isn’t always a secure place for private data. With Bitcoin, users do not give up private information.

a. They have two keys – a public key that serves as the bitcoin address and a private key with personal data.

b. Transactions are “signed” digitally by combining the general public and private keys; a mathematical function is applied and a certificate is generated proving an individual initiated the transaction. Digital signatures are unique to each transaction and can’t be re-used.

c. The merchant/recipient never sees your secret information (name, number, home address) so it is somewhat anonymous nonetheless it is traceable (to the bitcoin address on the general public key).

5. Convenient payment system — Merchants can use Bitcoin entirely as a payment system; they do not have to hold any Bitcoin currency since Bitcoin can be changed into dollars. Consumers or merchants can trade in and out of Bitcoin and other currencies at any time.

6. International payments – Bitcoin is used all over the world; e-commerce merchants and service providers can easily accept international payments, which open up new potential marketplaces for them.

7. Easy to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). Regarding possible wrongdoing, it really is easier for police to trace these transactions.

8. Micropayments are possible – Bitcoins can be divided right down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This could be a genuine boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).

Still a little confused? Here are a few examples of transactions:

Bitcoin in the retail environment

At checkout, the payer uses a smartphone app to scan a QR code with all the current transaction information had a need to transfer the bitcoin to the retailer. Tapping the “Confirm” button completes the transaction. If the user doesn’t own any Bitcoin, the network converts dollars in his account in to the digital currency.

The retailer can convert that Bitcoin into dollars if it really wants to, there were no or suprisingly low processing fees (rather than 2 to 3 3 percent), no hackers can steal personal consumer information, and there is absolutely no risk of fraud. Very slick.

Bitcoins in hospitality

Hotels can accept Bitcoin for room and dining payments on the premises for guests who wish to pay by Bitcoin using their mobile wallets, or PC-to-website to cover a reservation online. A third-party BTC merchant processor can help in handling the transactions which it clears over the Bitcoin network. These processing clients are installed on tablets at the establishments’ front desk or in the restaurants for users with BTC smartphone apps. (These payment processors may also be designed for desktops, in retail POS systems, and built-into foodservice POS systems.) No bank cards or money have to change hands.