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

Okay, so what is bitcoin?

It’s not a real coin, it’s a “cryptocurrency,” a digital form of payment produced (“mined”) by many people around the world. This allows peer-to-peer transactions instantly, worldwide, for free or at a very low cost.

Bitcoin was invented after decades of cryptographic research by software developer Satoshi Nakamoto (considered a pseudonym), who developed the algorithm and introduced it in 2009. Its true identity remains a mystery.

This currency is not backed by tangible goods (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 every user. All you need is an email address, internet access and money to get started.

Where is it from?

Bitcoin is mined in a distributed computer network of users who use specialized software; the network solves certain mathematical proofs and looks for a certain sequence of data (“block”), which creates a certain pattern when the BTC algorithm is applied to it. The match produces bitcoin. It is difficult and requires a lot of time and energy.

Ever extract only 21 million bitcoins (currently in circulation is about 11 million). The mathematical problems that network computers solve make it increasingly difficult to control production and supply.

This network also verifies all transactions using cryptography.

How does bitcoin work?

Internet users transfer digital assets (bits) to each other over the network. There is no Internet banking; rather, bitcoin has been described as a common book on the Internet. Users buy bitcoins in cash or by selling a product or service for bitcoins. Bitcoin wallets store and use this digital currency. Users can sell this virtual registry by selling their bitcoins to someone else. Anyone can do it anywhere in the world.

There are applications for smartphones for mobile Bitcoin transactions, and bitcoin exchanges are filling the Internet.

How is bitcoin valued?

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

Instead, the value of bitcoin lies simply in its acceptance by users as a form of payment and because its offer is limited. Its world currency values ​​fluctuate depending on supply and demand and market speculation; as more people create wallets, store and spend bitcoin, and more businesses accept this, the value of bitcoin will rise. Now banks are trying to value bitcoin, and some investment sites predict that the value of bitcoin in 2014 will be several thousand dollars.

What are the benefits?

Consumers and sellers who want to use this payment method have benefits.

1. Fast transaction – Bitcoin is instantly transmitted over the Internet.

2. No fees / low fees – unlike credit cards, bitcoin can be used for free or very low. Without a centralized institution as an average person, permits (and fees) are not required. This improves sales revenue.

3. Eliminates the risk of fraud. Only the owner of the bitcoin can send the payment to the intended recipient, who alone can receive it. The network knows that the transfer has taken place and the transactions are being checked; they cannot be challenged or taken back. This is important for online merchants, who are often judged by credit card processors as to whether a transaction is fraudulent, or for businesses that pay a high price for credit card returns.

4. Data Security – As we’ve seen with recent hacked payment processing systems in national retail chains, the Internet isn’t always a secure place for private data. With bitcoins, users do not give up personal information.

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

b. Transactions are “signed” digitally, combining public and private keys; a mathematical function is applied and a certificate is created confirming that the user has initiated the transaction. Digital signatures are unique to each transaction and cannot be reused.

c. The merchant / recipient never sees your classified information (name, number, physical address), so it is somewhat anonymous, but can be traced (to a bitcoin address in public).

5. Convenient payment system – Merchants can use Bitcoin entirely as a payment system; they should not store any bitcoin currency because bitcoin can be converted into dollars. Consumers or traders can trade and withdraw bitcoin and other currencies at any time.

6. International payments – bitcoins are used worldwide; E-commerce merchants and service providers can easily accept international payments, opening up new potential markets for them.

7. Easy to track – the network tracks and constantly registers each transaction in the Bitcoin blockchain (database). In case of possible illegal actions, it is easier for law enforcement officers to track these operations.

8. Possible micropayments – bitcoin can be divided into a hundred million share, so making small payments in dollars or less becomes a free or almost free transaction. This can be a real boon for stores, coffee shops and subscription-based websites (videos, publications).

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

Bitcoin in the retail environment

When paying, the payer uses a smartphone app to scan the QR code with all the transaction information needed to transfer bitcoin to retailers. Clicking the “Confirm” button completes the transaction. If the user does not own any bitcoin, the network converts dollars into its account into digital currency.

The retailer can convert this bitcoin into dollars if he wants, there were no processing fees or they were very low (instead of 2-3 percent), hackers could not steal the consumer’s personal information, and there is no risk of fraud. Very smooth.

Bitcoin in hospitality

Hotels can accept Bitcoin for paying for rooms and canteens indoors for guests who want to pay with bitcoins using their mobile wallets, or from a PC to an online payment site. BTC’s independent trading processor can help process the transactions it clears through the Bitcoin network. These processing clients are installed on tablets at the business registration desk or in restaurants for users of BTC smartphone applications. (These payment processors are also available for desktops, in retail POS trading systems and built into POS food service systems.) No credit cards or money need to be changed.

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

That sounds good – so what’s the catch?

Business owners need to consider participation, security and cost.

• A relatively small number of regular consumers and traders currently use or understand Bitcoin. However, acceptance is increasing worldwide and tools and technologies are being developed to facilitate participation.

• It’s the Internet, so hackers threaten exchanges. The Economist reported that the bitcoin exchange was hacked in September 2013, and $ 250,000 in bitcoins was stolen from users ’online repositories. Bitcoin can be stolen like any other currency, so vigilant security of networks, servers and databases is paramount.

• Users should carefully guard their bitcoin wallets that hold their private keys. Reliable backups or printouts are crucial.

• Bitcoin is not regulated or insured by the U.S. government, so there is no insurance for your account if the exchange fails or bribes are robbed.

• Bitcoin is relatively expensive. Current rates and selling prices are available on online exchanges.

Virtual currency is not yet universal, but it receives information about the market and its recognition. Businesses may choose to try Bitcoin to save on credit cards and bank charges as a convenience to the customer, or to check if it helps or hinders sales and profitability.

Are you thinking about taking bitcoin? Do you already use it? Share with us your thoughts and experiences.