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

Okay, what is Bitcoin?

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

After decades of research on cryptocurrency, it was invented by software developer Satoshi Nakamoto (who believes it is a nickname), who designed the algorithm and introduced it in 2009. His true identity remains a mystery.

This currency is not protected by a tangible asset (such as gold or silver); bitcoins are traded online which in turn makes them a commodity.

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

Where does it come from?

Bitcoin is extracted from a distributed network of users using specialized software; the network solves some mathematical proofs, and searches for a specific sequence of data (“blocks”) that creates a particular pattern when the BTC algorithm is applied. A game creates a bitcoin. It is complex and takes time and energy.

Only 21 million bitcoins need to be extracted (about 11 million are currently in circulation). The math problems that network computers solve make it increasingly difficult to keep mining operations and supplies under control.

This network also validates all transactions through cryptography.

How does Bitcoin work?

Internet users transfer digital assets (bits) to each other over a network. There are no online banks; rather, Bitcoin has been described as a widely distributed book on the Internet. Users sell Bitcoin in cash or a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users will be able to sell this virtual book by trading it with someone else who wants Bitcoin. Anyone can do this anywhere in the world.

There are smartphone apps for making Bitcoin transactions on mobile phones and Bitcoin exchanges are filling the Internet.

How is Bitcoin valued?

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

Instead, the value of Bitcoin lies in its acceptance among users as a means of payment and because its supply is limited. The values ​​of its global currency vary according to supply and demand and market speculation; As more people create portfolios, hold and spend bitcoins, and support more businesses, the value of Bitcoin will increase. Banks are trying to value Bitcoin and some investment websites predict that the price of a bitcoin in 2014 will be thousands of dollars.

What are its benefits?

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 very low fees. Without a centralized organization that is a central man, there is no need for permission (and fees). This improves sales margin profits.

3. Eliminates the risk of fraud. The Bitcoin owner can send the payment to the recipient, which is the only one who can receive it. The network knows that the transfer has taken place and that the transactions are validated; they cannot be challenged or pushed back. This is often important for merchants who are often dependent on business assessments by credit card processors to decide whether or not a transaction is a scam or whether they pay a high price for credit card charges.

4. Data is secure – As we have seen with the latest hacking in national merchant payment processing systems, the Internet is not always a safe place for private data. With Bitcoin users do not leave 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 digitally “signed” by combining public and private keys; a mathematical function is applied and a certificate is created verifying that the user has initiated the transaction. Digital signatures are unique to each transaction and cannot be reused.

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

5. Convenient payment system – Merchants can fully use Bitcoin as a payment system; they should not have Bitcoin currency, as Bitcoin can be converted into dollars. Consumers or traders can trade in Bitcoin and other currencies and others at any time.

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

7. Easy tracking – The network keeps track of all transactions in the Bitcoin blockchain (database) and records them permanently. In the event of errors, it is easier for law enforcement officials to monitor these transactions.

8. Micro-payments are possible – Bitcoins can be distributed in hundreds of millions, so making small payments of one dollar or less becomes a free or near-free transaction. This can be a real help for websites (videos, publications) based on convenience stores, cafes and subscriptions.

Are you still a little confused? Here are some examples of transactions:

In the Bitcoin retail environment

When making a payment, the payer uses a phone app to scan the QR code with all the transaction information needed to transfer it to the bitcoin store. The transaction is completed by clicking on the “Confirm” button. If the user does not own Bitcoin, the network converts the dollars in his account into digital currency.

If the trader wants to convert that Bitcoin into dollars, processing fees were not or very low (between 2-3 percent), hackers cannot steal consumers ’personal information and there is no risk of fraud. Very thick.

Bitcoins in the hospitality industry

Hotels can accept Bitcoin locally to make room and dining payments for customers who want to pay for Bitcoin using their mobile wallets or online booking from the computer to the website. A third-party BTC vendor processor can help you manage transactions that clear the Bitcoin network. These processing clients are installed on tablets at the entrance of establishments or restaurants for users with BTC smartphone applications. (These payment processors are also available for computers, integrated into retail POS systems and food service POS systems.) There is no need to change credit cards or money manually.

These cashless transactions are fast and the processor can convert bitcoins into currency and make a daily direct deposit into the bank account of the establishment. It was announced in January 2014 that two hotel casinos in Las Vegas will accept Bitcoin payments at the front, at their restaurants and at the gift shop.

Sounds good – so what’s the catch?

In order for business owners to participate, they will need to consider security and cost issues.

• Today a small number of ordinary Bitcoin consumers and traders use or understand Bitcoin. However, adoption is on the rise worldwide and tools and technologies are being developed to facilitate participation.

• The Internet is so hackers are a threat to exchanges. The Economist reported that in September 2013 a Bitcoin exchange was hacked and $ 250,000 bitcoins were stolen from the online vaults of users. Bitcoins can be stolen like any other currency, so network, server and database security is vigilant.

• Users should be careful about bitcoin wallets with private keys. Backup or secure printing is key.

• Bitcoin is not regulated or insured by the US government; so there is no insurance on your account if the exchange ends the business or is hacked by hackers.

• Bitcoins are quite expensive. Current rates and sale prices are available for online exchanges.

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 commissions, as a customer convenience or to see if it helps or hinders sales and profitability.

Are you thinking of accepting Bitcoin? Do you already use it? Share your thoughts and experiences with us.