OK, so what’s Bitcoin?
It’s not an 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 associated with research into cryptography by software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and introduced it in 2009. His true identity remains a mystery.
This currency is not backed with a tangible commodity (such as precious metal or silver); bitcoins are traded online which makes them an item in themselves.
Bitcoin is an open-source product, accessible by anyone who is really an user. All you need is an email address, Internet access, and money to get started.
Where would it come from?
Bitcoin is mined on the 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 particular pattern once 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 system computers solve get progressively more challenging to keep the mining operations and provide in check.
This network also validates all the transactions through cryptography.
How does Bitcoin work?
Internet users transfer electronic 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 within. Anyone can do this, anywhere in the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges 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 it cannot be devalued by governments or even 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 much more businesses accept it, Bitcoin’s worth will rise. Banks are now looking to value Bitcoin and some investment 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 utilize 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 costs. Without the centralized institution as middle man, there are no authorizations (and fees) required. This improves income sales.
3. Eliminates fraud danger -Only the Bitcoin owner can send payment to the intended recipient, who is the only one who can receive this. The network knows the move has occurred and transactions are usually validated; they cannot be challenged or even taken back. This is big with regard to online merchants who are often subject to credit card processors’ assessments of whether 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’ transaction processing systems, the Internet is not often a secure place for personal data. With Bitcoin, users never give up private information.
a. They have 2 keys – a public essential that serves as the bitcoin tackle and a private key with individual data.
b. Transactions are “signed” digitally by combining the public and private keys; a mathematical perform is applied and a certificate is definitely generated proving the user initiated the transaction. Digital signatures are exclusive to each transaction and cannot be re-used.
c. The merchant/recipient in no way sees your secret information (name, number, physical address) so it’s relatively anonymous but it is traceable (to the bitcoin address on the community key).
5. Convenient payment program — Merchants can use Bitcoin completely as a payment system; they do not need to hold any Bitcoin currency considering that 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 permanently logs every transaction in the Bitcoin block chain (the database). When it comes to possible wrongdoing, it is easier to get law enforcement officials to trace these transactions.
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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 some examples of transactions:
Bitcoin in the store environment
At checkout, the payer uses a smartphone app to scan a QR code with all the deal 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 retailer can convert that Bitcoin into dollars if it wants to, there were no or very low processing fees (instead of 2 to 3 percent), simply no hackers can steal personal consumer information, and there is no risk of fraud. Very slick.
Bitcoins within 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 pay for 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 in the establishments’ front desk or in the restaurants for users with BTC smartphone apps. (These payment processors 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 an everyday 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, within their restaurants, and in the gift store.
It sounds good – so exactly what is the catch?
Business owners should consider problems of participation, security and cost.
᾿ A relatively small number of ordinary customers and merchants currently use or even understand Bitcoin. However , adoption will be increasing globally and tools and technologies are being developed to make participation easier.
᾿ It’s the Internet, therefore hackers are threats to the exchanges. The Economist reported that a Bitcoin exchange was hacked in September 2013 and $250, 000 in bitcoins was stolen from users’ online vaults. Bitcoins can be taken like other currency, so aware 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 covered by the US government so there is no insurance for your account if the swap goes out of business or is usually 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 even hinders sales and profitability.