It’s no actual coin, it’s “cryptocurrency,” a digital form of payment that’s produced (“mined”) by lots of people worldwide. It allows peer-to-peer transactions instantly, worldwide, for free or at suprisingly low cost.
Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (thought to be a pseudonym), who designed the algorithm and introduced it in ’09 2009. His true identity remains a mystery.
This currency isn’t backed by a tangible commodity (such as for example gold or silver); bitcoins are traded online making them a commodity in themselves.
Bitcoin can be an open-source product, accessible by anyone who is a user. All you have to is an email address, Internet access, and money to begin with.
Where does it result from?
Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and searches for a specific data sequence (“block”) that produces a particular pattern when the BTC algorithm is applied to it. A match produces a bitcoin. It’s complex and time- and energy-consuming.
Only 21 million bitcoins are ever to be mined (about 11 million are currently in circulation). The math problems the network computers solve get progressively more difficult to help keep the mining operations and offer in check.
This network also validates all of the transactions through cryptography.
How does Bitcoin work?
Internet users transfer digital assets (bits) to each other on a network. There is absolutely no online bank; rather, Bitcoin has been referred to as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling something or service for Bitcoin. Bitcoin wallets store and utilize this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can perform this, anywhere in the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.
How is Bitcoin valued?
Bitcoin isn’t held or controlled by a financial institution; it is completely decentralized. Unlike real-world money it cannot be devalued by governments or banks.
Instead, Bitcoin’s value lies simply in its acceptance between users as a kind of payment and because its supply is finite. Its global currency values fluctuate according to supply and demand and market speculation; as more people create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s value will rise. Banks are now trying to value Bitcoin and some investment websites predict the cost of a bitcoin will be thousands of dollars in 2014.
What are its benefits?
There are advantages to consumers and merchants that are looking to utilize this payment option.
1. Fast transactions – Bitcoin is transferred instantly on the internet.
2. No fees/low fees — Unlike credit cards, Bitcoin can be used for free or very low fees. Minus the centralized institution as middle man, you can find no authorizations (and fees) required. This improves income sales.
3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who is the only one who can receive it. The network knows the transfer has occurred and transactions are validated; they can not be challenged or taken back. This is big for online merchants who are often subject to credit card processors’ assessments of whether or not a transaction is fraudulent, or businesses that pay the high price of credit card chargebacks.
4. Data is secure — Once we have observed with recent hacks on national retailers’ payment processing systems, the web isn’t always a secure place for private data. With Bitcoin, users do not give up private information.
a. They have two keys – a public key that serves because the bitcoin address and an exclusive key with personal data.
b. Transactions are “signed” digitally by combining the public and private keys; a mathematical function is applied and a certificate is generated proving the user initiated the transaction. Digital signatures are unique to each transaction and can’t be re-used.
c. The merchant/recipient never sees your secret information (name, number, home address) so it’s somewhat anonymous but it is traceable (to the bitcoin address on the general public key).
5. Convenient payment system — Merchants may use Bitcoin entirely as a payment system; they don’t have to hold any Bitcoin currency since Bitcoin can be changed into dollars. Consumers or merchants can trade in and out of Bitcoin along with other currencies at any time.
6. International payments – Bitcoin can be used around the world; e-commerce merchants and service providers can simply accept international payments, which open up new potential marketplaces for them.
7. An easy task to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). Regarding possible wrongdoing, it really is easier for police to trace these transactions.
8. Micropayments are possible – Bitcoins can be divided right down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This could be a genuine boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).
Still a little confused? Here are a few examples of transactions:
Bitcoin in the retail environment
At checkout, the payer runs on the smartphone app to scan a QR code with the transaction information needed to transfer the bitcoin to the retailer. Tapping the “Confirm” button completes the transaction. If an individual doesn’t own any Bitcoin, the network converts dollars in his account in to the digital currency.
The retailer can convert that Bitcoin into dollars if it really wants to, there were no or very low processing fees (rather than 2-3 3 percent), no hackers can steal personal consumer information, and there is no threat of fraud. Very slick.
Bitcoins in hospitality
Hotels can accept Bitcoin for room and dining payments on the premises for guests who wish to pay by Bitcoin using their mobile wallets, or PC-to-website to pay for a reservation online. A third-party BTC merchant processor can assist in handling the transactions which it clears on the Bitcoin network. These processing clients are installed on tablets at the establishments’ front desk or in the restaurants for users with BTC smartphone apps. (These payment processors are also designed for desktops, in retail POS systems, and built-into foodservice POS systems.) No bank cards or money need to change hands.