Bitcoins have been making their way into the mainstream media recently, and I’m sure many have been wondering what is it all
First, a Bitcoin is a form of digitally encrypted currency (or a commodity, depending on how you
look at it) that allows individuals to make secure payments over the Internet or in person for almost no cost. There is no central organization that runs Bitcoin. Instead, it runs on a peer-to-peer network technology where everyone who uses it contributes in one way or another to the management of the system. There are many good resources online to learn more about the technical aspects of how it works, but for those who want an easy to understand version of how the system works, I recommend this video:
Why should my business accept Bitcoins when I already take Credit and Debit cards?
Businesses need to offer as many choices as possible to make the process of buying your products and services as easy as possible. Unfortunately, it costs money in order to accept money. If you are not simply doing cash transactions, then you need to pay for banking fees, a Point of Sale system and the monthly fees that come associated with it, a percentage of all payment received for credit card transactions (usually around 3% but can vary) as well as the merchant account you need. All in all, accepting payment by credit card can be quite expensive and eat into your profit margins. Bitcoin transactions can be exchanged for very little costs. In order to process transactions through the Bitcoin network, computers have to handle the transaction and record it in the general leger of all Bitcoin transactions. That takes time, usually an hour. If you pay a small fraction more, you can have your transaction sped up. The cost of accepting Bitcoins is probably around 1% or less of a total transaction value.
As well as them being cheaper to accept than traditional payment forms, they are easier and safer for electronic fund transfer. When you buy something online with your credit card, you are providing your card number, expiry date, and the security code to the business. You can be sure they do their best to keep your information safe, however as we have heard about in the news recently, large data breaches in major retailers have led to the loss of millions of individuals credit card information. With those numbers, criminals can make purchases on your account. With Bitcoin however, a transaction can only be done between the two parties buying and selling. Once a Bitcoin transaction occurs, it can not be undone, and the information you provide for the payment can not be stolen and used to make other purchases. This benefits the consumer since there is little risk of fraudulent activity after your transaction.
From a business perspective, accepting the payment means secured funds. Since a transaction can not be tampered with, the funds you receive are yours and there is virtually no risk of being clawed back. It is about as close to having cash in hand as you can get in an online world.
Who uses Bitcoins?
There is a bit of a “What comes first?” scenario with Bitcoins. You want to spend your Bitcoins on things, but not many places accept them, and businesses don’t think they need to accept them since no one has them. As described above, the time and costs involved in accepting Bitcoins is fairly small, so it makes it worth it to investigate it. Consumers are starting to come more on board with the idea and are wanting to use their existing Bitcoins. It will create a snowball effect as more businesses begin accepting them, more people will start using them.
Recently, Overstock.com in the US announced they would begin accepting them as a form of payment, and as of the time of this writing, TigerDirect.com announced they were going to begin accepting them as payment for products online. These are just 2 of the many businesses that are beginning to offer them as an option alongside their traditional payment methods.
I hear the cost of Bitcoins changes rapidly. What if I make a trade for Bitcoins and then the price drops?
Just like any currency or commodity, the value for Bitcoins has been fluctuating recently. This high degree of volatility may make some businesses worried about jumping on the bandwagon. For those that don’t want to play around with the risk of fluctuating worth of Bitcoins, there are merchant solutions that will handle the Bitcoin sale for you and immediately convert your Bitcoins into traditional currency. BitPay allows you to integrate their merchant services into payment process. You can then offer payment by Bitcoin on your website and have the funds converted into your home currency. They will then do daily deposits into your bank account with the value of your sales. Since you are getting the transaction value at that current price, you do not need to worry about how much the price for a Bitcoin fluctuates. Your money is safe, and in your traditional bank account.
I thought Bitcoins were associated with a lot of criminal activity?
Recent news has been about the FBI shutting down a website that offered illegal products and services in exchange for Bitcoins. The semi anonymous nature of Bitcoins has attracted some criminal activity online. In actual fact, Bitcoins do leave a trace online and are searchable. Although everyone has a unique and anonymous address given to them, all transactions from an address are part of the worldwide leger of transactions. This makes Bitcoins more of a security risk to criminals than traditional cash would. Therefore, Bitcoins should be less of an interest to criminals than cold, hard cash.
Are there any downsides to Bitcoin?
As with any option, there are always pros and cons. If you want to get involved with Bitcoins, there are a few things to consider. As mentioned previously, Bitcoins value fluctuates quite a bit. For the most part it is moving up, however if you are going to hold on to Bitcoins for a while, keep in mind that it can change in value compared to other traditional (fiat) currencies.
Right now, acquiring Bitcoins is a bit of a challenge. You need to find someone in person to trade with, or set up an account with an exchange to convert. It is getting easier to buy them now with Bitcoin ATMs starting to spring up all over the world. While still few and far between, they are making headway.
Making sure you manage your Bitcoins also requires a bit of thought. Many online wallets are available, but it is still best to keep them stored on a computer for security. Just remember if you do store them on a local hard drive, don’t throw it in the garbage without backing it up!
I am interested, but don’t know where to start
There are many great places to start investigating how to get involved. The website www.bitcoin.org is a great place to get information on how to get started. There are a number of other resources online such as online wallets, exchanges, and Bitcoin businesses that are popping up that will help you get set up. Many major cities are also building up communities of Bitcoin enthusiasts who are more than willing to share their knowledge.
If you are a small business and want some guidance on where to look for information on Bitcoins, feel free to contact me by Twitter @Stealth2377 or fill out the contact information below.
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