OK, so what’s Bitcoin?
It’s not a real coin, it’s “cryptocurrency, ” an electronic form of payment that is produced (“mined”) by lots of people worldwide. It enables peer-to-peer transactions instantly, worldwide, at no cost 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 formula and introduced it in 2009. His true identity remains a mystery.
This currency is not backed by a tangible commodity (such as precious metal or silver); bitcoins are exchanged online which makes them an item in themselves.
Bitcoin is an open-source product, accessible by anyone who is an user. All you need is an email address, Access to the internet, and money to get started.
Where does it come from?
Bitcoin is mined on the distributed computer network of customers running specialized software; the network solves certain mathematical proofs, and searches for a particular data sequence (“block”) that produces a particular pattern when the BTC algorithm is applied to it. A match produces a bitcoin. It’s complex and time- plus 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 keep the mining operations and supply in check.
This network also validates all the transactions through cryptography.
How exactly does Bitcoin work?
Internet users 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 along with cash or by selling a product or service for Bitcoin. Bitcoin wallets store and use this electronic currency. Users may sell out of this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can do this, anywhere in the world.
You can find smartphone apps for conducting cellular Bitcoin transactions and Bitcoin trades are populating the Internet.
How is Bitcoin valued?
Bitcoin is not held or even controlled by a financial institution; it is totally decentralized. Unlike real-world money this cannot be devalued by governments or banks.
Instead, Bitcoin’s value is situated simply in its acceptance between customers as a form of payment and because the supply is finite. Its global currency values fluctuate according to provide and demand and market speculation; as more people create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s worth will rise. Banks are now seeking to value Bitcoin and some investment internet sites predict the price of a bitcoin will be several thousand dollars in 2014.
What are its benefits?
There are benefits in order to consumers and merchants that want to make use of this payment option.
1 . Fast transactions – Bitcoin is moved instantly over the Internet.
2 . No fees/low fees — Unlike credit cards, Bitcoin can be used for free or very low charges. Without the centralized institution as middle man, there are no authorizations (and fees) required.
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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 can receive it. The network knows the move has occurred and transactions are usually validated; they cannot be challenged or taken back. This is big for online merchants who are often subject to credit card processors’ assessments of whether a transaction is fraudulent, or businesses that pay the high associated with credit card chargebacks.
4. Data is secure — As we have seen with current hacks on national retailers’ transaction processing systems, the Internet is not constantly a secure place for personal data. With Bitcoin, users never give up private information.
a. They have two keys – a public crucial that serves as the bitcoin address and a private key with private data.
b. Transactions are “signed” digitally by combining the public and private keys; a mathematical function is applied and a certificate can be generated proving the user initiated the transaction. Digital signatures are distinctive to each transaction and can not be re-used.
c. The merchant/recipient certainly not sees your secret information (name, number, physical address) so it’s considerably anonymous but it is traceable (to the bitcoin address on the open public key).
5. Convenient payment system — Merchants can use Bitcoin entirely as a payment system; they do not need to hold any Bitcoin currency since Bitcoin can be converted to dollars. Consumers or merchants can trade in and out of Bitcoin and other currencies at any time.
6. International payments – Bitcoin is used around the world; e-commerce merchants and service providers can easily accept international obligations, which open up new potential marketplaces for them.
7. Easy to track — The network tracks and completely logs every transaction in the Bitcoin block chain (the database). When it comes to possible wrongdoing, it is easier regarding law enforcement officials to trace these transactions.
8. Micropayments are possible – Bitcoins can be divided down to one-hundred-millionth, so running small payments of the dollar or less becomes a free or near-free transaction. This could be a real 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 store environment
At checkout, the payer uses a smartphone app to scan a QR code with all the transaction information needed to transfer the bitcoin to the retailer. Tapping the “Confirm” button completes the transaction. When the user doesn’t own any Bitcoin, the network converts dollars in his account into the digital currency.
The particular retailer can convert that Bitcoin into dollars if it wants to, there was no or very low processing costs (instead of 2 to 3 percent), no hackers can steal personal customer information, and there is 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 cellular wallets, or PC-to-website to pay for the reservation online. A third-party BTC merchant processor can assist in managing the transactions which it clears over the Bitcoin network. These digesting clients are installed on tablets in the establishments’ front desk or in the restaurants for users with BTC smartphone apps. (These payment cpus are also available for desktops, in retail POS systems, and integrated into foodservice POS systems. ) No bank cards or money need to change hands.
These cashless transactions are quick and the processor can convert bitcoins into currency and make a day-to-day direct deposit into the establishment’s bank account. It was announced in January 2014 that two Las Vegas hotel-casinos need Bitcoin payments at the front desk, in their restaurants, and in the gift shop.
It sounds good – so can be the catch?
Business owners should consider issues of participation, security and cost.
᾿ A relatively small number of ordinary consumers and merchants currently use or understand Bitcoin. However , adoption is usually increasing globally and tools and technologies are being developed to make participation easier.
᾿ It’s the Internet, therefore hackers are threats to the trades. The Economist reported that a Bitcoin exchange was hacked in September 2013 and $250, 000 within bitcoins was stolen from users’ online vaults. Bitcoins can be taken like other currency, so vigilant network, server and database safety is paramount.
᾿ Users must carefully safeguard their bitcoin purses which contain their private keys. Safe backups or printouts are crucial.
᾿ Bitcoin is not regulated or insured by the US government so there is no insurance for your account if the swap goes out of business or is robbed by hackers.
᾿ Bitcoins are relatively expensive. Current rates and selling prices are available on the on the internet exchanges.
The virtual currency is not yet universal but it is gaining market awareness and acceptance. A business may decide to try Bitcoin to save on credit card and bank fees, as a customer convenience, or to see if it helps or hinders sales and profitability.