Bitcoin: What Is It, and Is It Right for the Business?
It’s not an actual coin, it’s “cryptocurrency,” a digital form of payment that’s produced (“mined”) by lots of people worldwide. It allows peer-to-peer transactions instantly, worldwide, for free 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 isn’t backed by way of a tangible commodity (such as gold or silver); bitcoins are traded online which makes them a commodity in themselves.
Bitcoin is an open-source product, accessible by anyone who’s a user. All you need is an email address, Access to the internet, 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 searches for a particular data sequence (“block”) that produces a specific pattern once the BTC algorithm is applied to 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 in circulation). The math problems the network computers solve get progressively more challenging to keep the mining operations and supply in check.
This network also validates all the transactions through cryptography.
How does Bitcoin work?
Internet surfers transfer digital assets (bits) to one another on a network. There is absolutely no online bank; rather, Bitcoin has been described as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling something or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell using this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can perform this, anywhere in the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the web.
How is Bitcoin valued?
Bitcoin is not held or controlled by a financial institution; it is completely decentralized. Unlike real-world money it cannot be devalued by governments or banks.
Instead, Bitcoin’s value lies simply in its acceptance between users as a kind of payment and because its supply is finite. Its global currency values fluctuate according to supply and demand and market speculation; as more folks create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s value will rise. Banks are actually trying to value Bitcoin and some investment websites predict the price of a bitcoin will be several thousand 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 over the Internet.
2. hardware /low fees — Unlike bank cards, Bitcoin can be used for free or very low fees. Minus the centralized institution as middle man, you can find no authorizations (and fees) required. This improves income sales.
3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who’s the only one who can receive it. The network knows the transfer has occurred and transactions are validated; they cannot be challenged or taken back. That is big for online merchants who are often subject to credit card processors’ assessments of if a transaction is fraudulent, or businesses that pay the high price of charge card chargebacks.
4. Data is secure — Once we have observed with recent hacks on national retailers’ payment processing systems, the Internet is not always a secure place for private data. With Bitcoin, users usually 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 public and private keys; a mathematical function is applied and a certificate is generated proving the user 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, physical address) so it is somewhat anonymous nonetheless it is traceable (to the bitcoin address on the public key).
5. Convenient payment system — Merchants may use Bitcoin entirely as a payment system; they do not need to hold any Bitcoin currency since Bitcoin could be changed into dollars. Consumers or merchants can trade in and out of Bitcoin and other currencies at any time.
6. International payments – Bitcoin can be used all over the world; e-commerce merchants and service providers can easily accept international payments, which start new potential marketplaces for them.
7. An easy task to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). In the case of possible wrongdoing, it really is easier for law enforcement officials 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? Below 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 into the digital currency.
The retailer can convert that Bitcoin into dollars if it really wants to, there were no or very low processing fees (rather than 2-3 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 assist 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 need to change hands.