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

Okay, so what is Bitcoin?

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

Bitcoin was invented after decades of research in cryptography by software developer Satoshi Nakamoto (believed to be an alias) who developed the algorithm and introduced it in 2009. His 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 anyone who is a 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 running 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. Coincidence produces bitcoin. It is difficult and requires time and energy.

Only 21 million bitcoins will ever be mined (about 11 million are currently in circulation). Mathematical problems solved by networked computers are becoming increasingly difficult to control mining and supply operations.

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 book distributed throughout the Internet. Users buy bitcoins for cash or sell a product or service for bitcoin. Bitcoin wallets store and use this digital currency. Users can sell this virtual book by trading their bitcoin to someone else who wants to. Everyone can do it anywhere in the world.

There are apps for smartphones to conduct mobile transactions with bitcoins, and bitcoin exchanges populate the Internet.

How is Bitcoin valued?

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

Instead, the value of bitcoin lies simply in its acceptance between users as a form of payment and because its quantity is limited. Its world currency prices fluctuate depending on supply and demand and market speculation; as more people create wallets, store and spend bitcoins, and more businesses accept this, the value of bitcoin will grow. Now banks are 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 sellers who want to use this payment option.

1. Fast transactions – bitcoin is instantly transmitted over the Internet.

2. No Fees / Low Fees – Unlike credit cards, Bitcoin can be used for free or very low fees. Without a centralized institution as an average person no permits (and fees) are required. This increases sales revenue.

3. Eliminates the risk of fraud -Only a bitcoin owner can send a payment to a designated recipient who alone can receive it. The network knows that the transfer has taken place and the transactions are verified; they cannot be challenged or returned. This is very 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 to return credit card payments.

4. Data is secure. As we have seen in recent hacks of national retail 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 confirming 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 partly anonymous, but it can be traced (to the address of bitcoins on the public key).

5. Convenient payment system – merchants can fully use bitcoin as a payment system; they do not have to keep the Bitcoin currency, as Bitcoin can be converted into dollars. Consumers or traders can change bitcoin and other currencies at any time.

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

7. Easy to track – the network tracks and constantly records each transaction in a chain of Bitcoin blocks (database). In case of possible violations, it is easier for law enforcement officers to track these transactions.

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

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

Bitcoin is in the retail environment

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

A retailer can convert this bitcoin into dollars if he wants, there was no or very low processing fee (instead of 2-3 percent), no hackers can steal a consumer’s personal information, and there is no risk of fraud. Very smooth.

Bitcoins in hospitality

Hotels can accept bitcoins to pay for rooms and food on site for guests wishing to pay with bitcoins using their mobile wallets, or from a PC to a website to pay for an online booking. A third-party BTC processor can help process transactions that it clears through the Bitcoin network. These processing clients are installed on tablets on the counter of the institution or in restaurants for users with applications for BTC smartphones. (These payment processors are also available for desktops, in retail POS systems and integrated into POS catering systems.) No need to switch hands from credit cards or cash.

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 casino hotels in Las Vegas 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 cost.

• A relatively small number of regular consumers and traders currently use or understand Bitcoin. However, it is spreading more and more globally, and tools and technologies are being developed to make participation easier.

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

• Users should carefully guard their bitcoin wallets that hold their private keys. Secure backup or printing is crucial.

• Bitcoin is not regulated or insured by the US government, so your account is not insured if the exchange does not work 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 popularity and recognition in the market. Businesses may choose to try bitcoin to save on credit cards and bank fees, for customer convenience, or to see if it helps or hinders sales and profitability.

Are you thinking about making Bitcoin? Do you already use them? Share with us your thoughts and experiences.