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Over the past several months, there’s been all this talk about Bitcoins. Some of us are reading the news daily and have pretty good grasp of what it is and what’s going on around us in terms of its acceptance, but others don’t have a clue what a Bitcoin (BTC) is. I first heard about this new form of non-managed “currency” last month and was intrigued by the idea of world acceptance for a single form of currency, so I’ve been following all related news.
In short, a Bitcoin can be explained as the first world-recognized, de-centralized digital currency. You pay with traditional forms of currency that gets converted into this digital currency that’s sent over the internet. Enjoy the following lists to get a better understanding of this topic.
How Bitcoins Works
As mentioned, traditional currency is transferred into Bitcoins using a free application that generates bitcoins, called a bitcoin miner. This works by adjusting the valued amount at a predictable and limited rate (using a Bitcoin algorithm). Bitcoins are then stored in a digital wallet, similar to how online banking works. Bitcoins can now be transferred from person to person via the internet. During the transfer, an electronic signature is added that will be verified by a miner, which is then anonymously stored in the network. The software is an open source code, which means that anyone can review the code.
Benefits for Individuals
- Lower cost (no processing fees)
- No prerequisites or arbitrary limits
- Peer to peer transactions (no governmental regulation and no identity attached to your payment)
- Secure (the more miners, the more complex the algorithm becomes)
- Accounts can NOT be frozen
- Very transparent in that it works everywhere
- Semi-anonymous purchasing. A purchase is tracked online for all to see, but the owner is not associated with the Bitcoin address. It is suggested that you change your Bitcoin address often, if you value anonymity, as your IP address is still attached to the purchase (I can imagine a slew of online purchases where this would be highly valued)
Benefits for Businesses
- Free for all businesses to accept Bitcoins
- Faster processing than credit cards and PayPal
- The network makes transactions secure
- No fees for processing
- No chargebacks, which puts an end to non-delivery claims and account hacking issues
- Additional business can be acquired from the limited Bitcoin community
Potential Issues with Bitcions
No matter how beneficial may be, there are still some issues to worry about in the Bitcoins world. They include:
- Unidentified flaws: Like all things new, mistakes are bound to happen and problems will arise. (Why do you think Google changes their algorithm over 500 times per year?)
- No regulation: As already mentioned, unregulated virtual coins can be a good thing. That also means it can be a negative, in that purchases aren’t associated to a name or account.
- Instability: The value of a Bitcoin fluctuates daily, even hourly, just like in the stock market. It would be great if the value sky-rockets after the exchange, but if it plummets, you’re kind of stuck. Sure you can hold off making purchases with Bitcoins until you see a rise in value, but what if you have to purchase something immediately?
- Limited acceptance: It’s still being considered among countries as people are skeptical to accept it as a form of payment. There’s a higher acceptance in European countries and America is just beginning to accept it.
- QR codes: In-person Bitcoin purchases can only be done with a QR code. (I was hoping QR codes would eventually prove to be more useful)
- Prices: Usually not available in BTC Form. When and if the time comes for a wide-acceptance of BTC, price-tags will need to display the amount in BTC in order to expedite the buying process. Since the value of one Bitcoin fluctuates, it wouldn’t be logical to price an item at 10 Bitcoins, for example. It would have to be in-terms of a stable value.
Want to learn more about Bitcoins? Check out some of the links below. These should answer any questions you have about how Bitcoins work and introduce you to new ways to use them.
- Shopping Cart Interfaces
- Bitcoin Store
- Digital Wallet
- Things you Need to Know
- Places that Directly Accept Bitcoins
- Where to Trade
- Where to Buy
- For your convenience, positive and negative viewpoints
A few people have tried to depend solely on Bitcoins for a short amount of time. One brave soul, Kashmir Hill, challenged herself to live on Bitcoins for a week, and survived just fine. Check out her day-by-day struggles, starting with day 1. What is your opinion of this new-age currency; will it come and go or linger for centuries to come?
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.