Okay, so what is bitcoin?
It’s not a real coin, it’s a cryptocurrency, a digital payment machine produced (mined) by many people around the world. It allows you to trade with partners instantly, worldwide, for free or at a very low price.
Bitcoin was discovered after decades of research into cryptography by software developer Satoshi Nakamoto (thought 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 any tangible commodities (such as gold or silver). bitcoins are sold online, which makes them a commodity.
Bitcoin is an open source product that is available to anyone who is a user. All you need to get started is an email address, internet access և money.
Where does it come from?
Bitcoin is mined on a distributed computer network of users working with specialized software. The network solves certain mathematical proofs և searches for a certain sequence (“block”) of data, which creates a certain pattern when the BTC algorithm is applied to it. Matches produce bitcoin. It’s difficult, it: takes time: energy.
Only 21 million bitcoins should ever be mined (about 11 million are currently in circulation). The mathematical problems solved by network computers are gradually becoming more difficult to control mining operations և supply.
This network also authenticates all transactions through encryption.
How does Bitcoin work?
Internet users transfer digital assets (bits) to each other over the network. There is no online banking; rather, bitcoin has been described as a distributed Internet log. Users buy bitcoin in cash or by selling a product or service in bitcoin. Bitcoin wallets hold և use this digital currency. Users can sell from this virtual registry by exchanging their bitcoin with someone else who wants to log in. Anyone can do it anywhere in the world.
There are smartphone apps for mobile bitcoin transactions, and bitcoin exchanges populate the internet.
How is bitcoin valued?
Bitcoin is not held or controlled by a financial institution. it is completely decentralized. Unlike real money, it cannot be devalued by governments or banks.
Instead, the value of Bitcoin lies in the fact that it is accepted by users as a form of payment because its supply is limited. Its world currency values fluctuate according to supply և demand և market speculations. As more people create wallets, store, spend bitcoins, and more businesses accept it, the value of Bitcoin will increase. Banks are now trying to value bitcoin, with some investment sites predicting that the price of bitcoin will reach several thousand dollars in 2014.
What are its benefits?
There are benefits for consumers and traders who want to use this payment option.
1. Fast Transactions – Bitcoin is instantly transferred over the Internet.
2. No charge / low charge – Unlike credit cards, Bitcoin can be used for free or very low charges. Without a centralized institution as a mediator, no powers (և fees) are required. This improves sales of profit margins.
3. Eliminates the risk of fraud – Only the owner of Bitcoin can send a payment to the intended recipient, who is the only one who can receive it. The network knows that the transfer took place, և the transactions are validated. they can not be challenged or taken back. This is great for online merchants who are often exposed to credit card processors’ assessments of whether the transaction is fraudulent or for businesses that pay a high price to repay a credit card.
4. The data is secure. As we have seen in the recent hacking of national retailers’ payment processing systems, the Internet is not always a safe place for private data. Users with Bitcoin do not give up personal information.
a. They have two keys – a public key that serves as a bitcoin address – a private key with personal data.
b. Transactions are “signed” digitally, combining public-private keys. a mathematical function is used և a certificate is created which proves that the user has started the transaction. Digital signatures are unique to each transaction և can not be reused.
c. The merchant / recipient never sees your confidential information (name, number, physical address), so they are somewhat anonymous but traceable (public key to bitcoin address).
5. Convenient payment system. Traders can fully use Bitcoin as a payment system; They do not have to keep any Bitcoin currency, as Bitcoin can be converted into dollars. Consumers or traders can trade bitcoins or other currencies at any time.
6. International Payments – Bitcoin is used worldwide; E-commerce և service providers can easily accept international payments, which opens up new potential markets for them.
7. Easy to Track – The backend always records every bitcoin blockchain (database) transaction. In case of possible illegalities, it is easier for law enforcement agencies to investigate these transactions.
8. Are micropayments possible? Bitcoins can be distributed up to one hundred millionth, so making payments of one dollar or less becomes a free or almost free transaction. This can be a real boon for convenience stores, coffee shops, and subscription-based websites (videos, posts).
Still a little confused. Here are some examples of deals.
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 pass the bitcoin to the retailer. Clicking the “Confirm” button completes the transaction. If the user does not have any bitcoin, the network converts dollars from his account into digital currency.
The retailer can turn that bitcoin into dollars if he wants, there were no processing fees or they are very low (instead of 2 to 3 percent), no hacker can steal the consumer’s personal data, և there is no risk of fraud. Very delicate.
Bitcoins in hospitality
Hotels may accept bitcoin payments for in-room dining for guests wishing to pay in bitcoins using their mobile wallets, or from a PC to a website for online bookings. A third-party BTC trading processor can help manage the transactions it clears through the Bitcoin network. These recycling customers are placed on tablets near desks in front of offices or in restaurants of users with BTC smartphone apps. (These payment processors are also available for desktops, retail POS systems, and integrated food service POS systems.) No need to change credit cards or money.
These non-cash transactions are fast և the processor can convert bitcoins into currency և make a direct daily deposit to the institution’s bank account. In January 2014, it was announced that two Las Vegas hotel-casinos would accept bitcoin payments on their billboards in their restaurants and gift shops.
Sounds good, so what is a catch?
Business owners need to consider the issues of participation, security and costs.
• A relatively small proportion of ordinary consumers և traders currently use or understand bitcoin. However, adoption is growing globally, and tools and technologies are being developed to facilitate participation.
• It is the Internet, so hackers are a threat to the stock market. The Economist reports that in September 2013, the Bitcoin exchange was hacked and $ 250,000 worth of bitcoins were stolen from users’ online repositories. Bitcoins can be stolen like other currencies, so vigilant security of the network, server and database is paramount.
• Users should carefully protect their bitcoin wallets that contain their personal keys. Secure backups or prints are very important.
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 hacked by hackers.
• Bitcoin is relatively expensive. Current prices և Sales prices are available on online exchanges.
Virtual currency is not yet universal, but it is gaining market awareness and acceptance. Businesses can decide to try bitcoin to save on credit cards և bank payments as a convenience to the customer, or to see if it helps or hinders sales: profitability.
Are you thinking of accepting bitcoin? Do you already use it? Share your thoughts and experiences with us.