Bitcoin: What Is It, and Is It Right for Your Business?

OK, so what's Bitcoin?

It's no actual coin, it's "crypto currency," 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 really low cost.

Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Naka moto (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 a concrete commodity (such as gold or silver); free bitcoins are traded online which makes them a commodity in themselves.

Bitcoin can be an open-source product, accessible by anyone who's a user. All you have to can be an email address, Access to the internet, and money to have started.

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 pursuit of a particular data sequence ("block") that produces a particular pattern once the BTC algorithm is placed on it. A match produces a free bitcoins online. It's complex and time- and energy-consuming.

Only 21 million bitcoins are ever to be mined (about 11 million are in circulation). The math problems the network computers solve get progressively more difficult to help keep the mining operations and supply in check.

This network also validates most of the transactions through cryptography.

So how exactly does Bitcoin work?

Internet users transfer digital assets (bits) to one another on a network. There is no online bank; rather, Bitcoin has been described being an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell from this virtual ledger by trading their Bitcoin to another person who would like in. Anyone can do this, anywhere in the world.

You can find smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.

How is Bitcoin valued?

Bitcoin is not held or controlled by an economic institution; it is wholly decentralized. Unlike real-world money it can't be devalued by governments or banks.

Instead, Bitcoin's value lies simply in its acceptance between users as a form of payment and because its supply is finite. Its global currency values fluctuate according to produce and demand and market speculation; as more individuals create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin's value will rise. Banks are now wanting to value Bitcoin and some investment websites predict the price tag on a bitcoin will soon be thousands of dollars in 2014.

What are its benefits?

You can find benefits to consumers and merchants that want to use this payment option.

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

2. No fees/low fees -- Unlike bank cards, Bitcoin may be used for free or really low fees. With no centralized institution as middle man, you will find no authorizations (and fees) required. This improves profit margins sales.

3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who's the only person who can receive it. The network knows the transfer has occurred and transactions are validated; they cannot be challenged or taken back. This is big for online merchants who're often at the mercy of bank card processors assessments of whether a transaction is fraudulent, or businesses that pay the high price of bank card chargebacks.

4. Data is secure -- As we have seen with recent hacks on national retailers payment processing systems, the Internet is not always a secure place for private data. With Bitcoin, users don't quit private information.

a. They have two keys - a public key that serves whilst 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 consumer 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, physical address) so it's somewhat anonymous but it is traceable (to the bitcoin address on the public key).

5. Convenient payment system -- Merchants may use Bitcoin entirely as a payment system; they do not have to carry any Bitcoin currency since Bitcoin can be transformed into dollars. Consumers or merchants can trade in and out of Bitcoin and other currencies at any time.

6. International payments - Bitcoin can be used all over the world; e-commerce merchants and service providers can simply accept international payments, which open 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). In case of possible wrongdoing, it now is easier for law enforcement officials to trace these transactions.

8. Micropayments are possible - Bitcoins can be divided down to at least one one-hundred-millionth, so running small payments of a buck or less becomes a free of charge or near-free transaction. This could be a real boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).