Bitcoin: what is it and is it suitable for your business?

Okay, so what is bitcoin?

This is not a real coin, but a “cryptocurrency”, a digital form of payment that is produced (“mined”) by many people around the world. Allows peer-to-peer transactions instantly, worldwide, free of charge or at a very low cost.

Bitcoin was invented after decades of cryptographic research 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 by material 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 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 mined in a distributed computer network by users working with specialized software; the network solves certain mathematical proofs and looks for a specific sequence of data (“block”) that produces a specific model when the BTC algorithm is applied to it. The coincidence produces bitcoin. It is complicated and time and energy consuming.

Only 21 million bitcoins will ever be mined (about 11 million are currently in circulation). The mathematical problems that networked computers solve are becoming increasingly difficult to keep digging 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 is no online bank; rather, bitcoin is described as a distributed book throughout the Internet. Consumers buy bitcoin with cash or by selling a bitcoin product or service. Bitcoin wallets store and use this digital currency. Users can sell from this virtual book by trading their bitcoins to someone else who wants to log in. Anyone can do this anywhere in the world.

There are applications for smartphones for mobile transactions with bitcoin and bitcoin exchanges are populated on the Internet.

How is bitcoin valued?

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

Instead, the value of bitcoin lies simply in its acceptance among consumers as a form of payment and because its supply is limited. The values ​​of its global currency fluctuate depending on supply and demand and market speculation; as more people create portfolios and hold and spend bitcoins and more businesses accept them, 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 the benefits of it?

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

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

2. No fees / low fees – Unlike credit cards, bitcoin can be used for free or very low fees. Without the centralized institution as a mediator, no permits (and fees) are required. This improves sales profit margins.

3. Eliminate the risk of fraud – Only the owner of bitcoin can send a payment to the target recipient, who is the only one who can receive it. The network knows that the transfer has taken place and the transactions have been validated; they cannot be challenged or returned. This is great for online merchants, who are often the subject of credit card processors’ assessments of whether or not a transaction is fraudulent, or for companies that pay the high price of credit card reversal.

4. Data is protected – As we have seen with recent hacks in national retailers’ payment processing systems, the Internet is not always a secure place for personal data. With bitcoin, 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 by combining public and private keys; a mathematical function is applied and a certificate is generated proving 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 secret information (name, number, physical address), so it is somewhat anonymous but traceable (up to the bitcoin address of the public key).

5. Convenient payment system – Merchants can use bitcoin entirely as a payment system; they do not have to hold bitcoin currency, as bitcoin can be converted into dollars. Consumers or traders can trade in and from 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, which opens up new potential markets for them.

7. Easy to track – the network tracks and constantly registers each transaction in the chain of Bitcoin blocks (database). In the event of breaches, it is easier for law enforcement officials to track these transactions.

8. Micropayments are possible – bitcoins can be split up to one hundred million, so making small payments of a dollar or less becomes a free or almost free transaction. This can be a real advantage for convenience stores, cafes and subscription-based websites (videos, publications).

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

Bitcoin in retail

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

The retailer can convert these bitcoins into dollars if he wants, there were no or very low processing fees (instead of 2 to 3 percent), no hackers can steal personal user information and there is no risk of fraud. Very slippery.

Bitcoin in hospitality

Hotels can accept bitcoins for room and meal payments for guests wishing to pay with bitcoin using their mobile wallets, or from a computer to a website to pay for an online reservation. A third-party BTC trading processor can help process the transactions it clears over the bitcoin network. These processing clients are installed on tablets at the reception of restaurants or in restaurants for consumers with applications for BTC smartphones. (These payment processors are also available for desktops, in POS retail systems, and are integrated into POS food service systems.) No credit cards or money needed to change hands.

These cashless transactions are fast and the processor can convert bitcoins into currency and make a daily direct deposit in the bank account of the establishment. In January 2014, it was announced that two Las Vegas casino hotels would accept bitcoin payments at the front desk, in their restaurants and in the gift shop.

Sounds good – so what’s the catch?

Business owners need to consider participation, security and costs.

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

• The Internet is, so hackers are a threat to stock markets. The Economist reported that a bitcoin exchange was hacked in September 2013 and $ 250,000 in bitcoins were stolen from consumers’ online vaults. Bitcoins can be stolen as another currency, so vigilant security of the network, server and database is paramount.

• Users should carefully keep their bitcoin wallets that contain their private keys. Secure archives or printouts are crucial.

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

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

Virtual currency is not yet universal, but it is gaining market awareness and acceptance. Businesses may decide to try bitcoin to save on credit cards and bank charges as customer convenience or see if it helps or hinders sales and profitability.

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