Bitcoin: What is it and is it right for your business?

OK, what is Bitcoin?

It is not an actual coin, it is a “cryptocurrency”, a digital form of payment that is produced (“mined”) by many people around the world. It enables peer-to-peer transactions instantly, worldwide, for free or at very low cost.

Bitcoin was invented after decades of cryptographic research by a software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and unveiled it in 2009. Its true identity remains a mystery.

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

Bitcoin is an open source product, available to anyone who is a user. All you need is an email address, internet access and money to get started.

where does he come from?

Bitcoin is mined on a distributed computer network of users using specialized software; the network solves certain mathematical proofs and looks for a certain string of data (a “block”) that produces a certain pattern when the BTC algorithm is applied to it. The match produces bitcoin. It is complex and requires time and energy.

Only 21 million bitcoins will ever be mined (about 11 million are currently in circulation). The mathematical problems that network computers solve are becoming increasingly difficult to keep mining operations and procurement under control.

This network also verifies all transactions through cryptography.

How does Bitcoin work?

Internet users transfer digital assets (bits) to each other online. There is no online bank; rather, Bitcoin is described as an Internet 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 can sell this virtual ledger by trading their Bitcoins to someone else who wants to. Anyone can do it, anywhere in the world.

There are smartphone apps for making mobile Bitcoin transactions, and bitcoin exchanges dot the Internet.

How is Bitcoin valued?

Bitcoin is not held or controlled by a financial institution; it is completely decentralized. Unlike real money, it cannot be devalued by governments or banks.

Instead, Bitcoin’s value lies simply in its acceptance among users as a form of payment and because its supply is limited. Its global currency values ​​fluctuate according to supply and demand and market speculation; As more people create wallets and hold and spend bitcoins, and more companies accept it, the value of Bitcoin will increase. Banks are now trying to value Bitcoin, and some investment websites predict that the price of Bitcoin will be several thousand dollars in 2014.

What are its advantages?

There are benefits for consumers and merchants who want to use this payment option.

1. Fast Transactions – Bitcoin is instantly transferred over the Internet.

2. No Fees/Low Fees — Unlike credit cards, Bitcoin can be used for free or with very low fees. Without a centralized institution as an intermediary, no authorizations (and fees) are required. This improves sales profit margins.

3. Eliminates the risk of fraud – Only the Bitcoin owner can send a payment to a recipient who is the only one who can receive it. The network knows that the transfer has taken place and the transactions have been confirmed; they cannot be disputed or taken back. This is big for online merchants who are often subject to credit card processors’ judgments about whether a transaction is fraudulent or not, or for businesses that pay a high price for credit card chargebacks.

4. Data is secure — As we’ve seen with the recent hacks of national retailers’ payment processing systems, the Internet isn’t always a safe place for private data. With Bitcoin, users don’t give up their private data.

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

b. Transactions are digitally “signed” with a combination of public and private keys; a mathematical function is applied and a certificate is generated proving that the user initiated the transaction. Digital signatures are unique to each transaction and cannot be reused.

c. The merchant/recipient never sees your secret information (name, number, physical address) so it is somewhat anonymous, but traceable (to a public key bitcoin address).

5. Convenient payment system — Merchants can use Bitcoin fully as a payment system; they don’t need to hold Bitcoin currency because Bitcoin can be converted into dollars. Consumers or merchants can trade in Bitcoin and other currencies at any time.

6. International payments – Bitcoin is used worldwide; Merchants and e-commerce service providers can easily accept international payments, opening up new potential markets for them.

7. Easy to Track — The network tracks and permanently records every transaction on the Bitcoin blockchain (database). In case of possible illegal actions, it is easier for law enforcement officials to trace these transactions.

8. Micropayments are possible – Bitcoins can be divided into one hundred millionths, so making small payments of one dollar or less becomes a free or near-free transaction. This could be a real boon for shops, cafes and subscription-based websites (videos, publications).

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

Bitcoin in a retail environment

When making a payment, the payer uses a smartphone app to scan a QR code with all the transaction information needed to transfer the bitcoins to the merchant. By touching the “Confirm” button, the transaction is completed. If the user does not own Bitcoin, the network converts the dollars in his account into the digital currency.

The seller can convert that Bitcoin into dollars if they want, there were no or very low processing fees (instead of 2 to 3 percent), hackers can’t steal the consumer’s personal information, and there is no risk of fraud. Very smooth.

Bitcoins in Hospitality

Hotels can accept Bitcoin for on-premises room and dining payments for guests who want to pay with Bitcoin using their mobile wallets or via computer to the website to pay for an online reservation. A third-party BTC merchant processor can help handle transactions that clear over the Bitcoin network. These processing clients are installed on tablets at the front desk of facilities or in restaurants for customers with BTC smartphone applications. (These payment processors are also available for desktop computers, in retail POS systems, and integrated into food POS systems.) No need to exchange credit cards or money.

These cashless transactions are fast and the processor can convert bitcoins into currency and make a daily direct deposit into the institution’s bank account. In January 2014, it was announced that two hotel-casinos in Las Vegas would accept Bitcoin payments at the front desk, in their restaurants and in the gift shop.

Sounds good – what’s the catch?

Business owners need to consider participation, security and cost issues.

• Relatively few ordinary consumers and merchants currently use or understand Bitcoin. However, adoption is increasing globally, and tools and technologies are being developed to facilitate participation.

• It’s the Internet, so hackers are a threat to the exchange. The Economist reported that a bitcoin exchange was hacked in September 2013 and $250,000 in bitcoins were stolen from users’ online vaults. Bitcoins can be stolen just like other currencies, so vigilant network, server and database security is paramount.

• Users must carefully guard their bitcoin wallets containing their private keys. Secure backups or prints are critical.

• Bitcoin is not regulated or insured by the US government so there is no insurance for your account if the exchange goes down or is robbed by hackers.

• Bitcoins are relatively expensive. Current exchange rates and sales prices are available on the Internet exchanges.

Virtual currency is not yet universal, but it is becoming more well-known and accepted in the market. 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.

Are you thinking about accepting Bitcoin? Are you already using it? Share your thoughts and experiences with us.