How can you use Bitcoin for business?
Bitcoin: everyone seems to be talking about it these days, but many people don’t understand what it is or why there’s such a keen interest in it.
Recently this form of online currency came back into the public eye when Australian Craig Steven Wright stepped forward and claimed to be the inventor of Bitcoin. This was pretty big news in the world of technology because, until this moment, the identity of the inventor (or inventors) was held private.
With that in mind, let’s take a look at the history of Bitcoin, what it is, and how this fascinating currency can affect your business.
What are Bitcoins and How Do They Work?
Bitcoin is an open-source digital asset and payment system published in 2008 by a user or group of users known only as Satoshi Nakamoto.
In layman’s terms, Bitcoin is a new digital currency which is shared and distributed without the oversight of a traditional banking system. Also called a “cryptocurrency,” Bitcoin is distributed and hosted as a peer-to-peer network and recorded in a ledger called a block chain. The block chain uses Bitcoin as units of accounts the same way your bank uses national currency.
Because Bitcoins can’t be formally regulated, the legality around them is a bit of a gray area. In many cases, it is viewed as a threat to cyber security by law enforcement officials because it is untraceable. This feature is where you might have heard some of the shady business around the cryptocurrency, as it makes Bitcoin a great resource for people to purchase goods illegally online or for hackers to use it as payment for ransomware, a kind of malware which freezes your computer until a ransom is paid to the hackers.
Learn more about ransomware: How a Virus Can Manipulate You
However, block chain technology and cryptocurrency can be used for a lot more than seedy online purchases.
For example, British singer/songwriter Imogen Heap is using a site called Ujo Music to allow fans to purchase her latest song, “Tiny Human,” using a digital currency called Ether. This way she and the other producers, writers and engineers involved with the song’s production can receive payments without paying out royalties to other parties.
How Do You “Earn” Bitcoins?
The area that confuses most people when they first hear about Bitcoins is how they’re earned, because obviously you can’t go to a traditional bank where you withdraw or deposit them.
The main way to earn the currency is through a method called "mining." Bitcoins are awarded to users who allow their computers (and computing power) to run the Bitcoin algorithm. Users who allow their computers to be used for this are called Bitcoin miners. That generates new Bitcoins at a controlled rate that, in turn, controls the total number of available Bitcoins in existence. This can become a much more complicated and sophisticated process.
Bitcoins can also be exchanged for traditional forms of currency through services called Bitcoin Exchanges, which is the most common way that people buy bitcoins.
Other ways to get your digital hands on the currency are through Bitcoin ATMs, accepting Bitcoin as payment for goods and services and trading cash for Bitcoins in-person.
Note: Be careful with your money. Bitcoin services are not highly regulated, and there can be dishonest people that you interact with along the way. For more information, see the Bitcoin Wiki warning that boldly states the potential risks.
Are Bitcoins Safe?
As we discussed earlier, each Bitcoin user lends their computer to help maintain the block chain, which acts as a global running tally of every single Bitcoin transaction. This system prevents users from spending the same Bitcoin twice and ensures the integrity of the transaction history because it is public and transparent while still keeping the users themselves anonymous.
However, things get murky when it comes to areas where people store their digital currencies because some exchange systems have been sloppy or not monitored as fiercely, which means that an individual’s electronic wallet may be able to be stolen with all of their Bitcoin currency. In 2014, for example, the Japanese Bitcoin exchange Mt. Gox had a reported $460 million lost from their accounts, sending the exchange into bankruptcy.
The Craig Steven Wright Scandal
Most recently Bitcoin has surged back into public discourse on May 2 when Australian and former academic Craig Steven Wright stepped forward and claimed to be Satoshi Nakamoto. Wright has long been considered to be one of the possible candidates behind the Nakamoto moniker, but until now has largely been silent.
On his blog, he promised to show “extraordinary proof” which would convince the world that he was, in fact, Satoshi Nakamoto. Instead, on May 5 a post appeared on his blog which appears to be an apology, stating that he “isn’t brave enough” to continue with his effort to prove that he is, in fact, Bitcoin’s creator.
What Does Bitcoin Mean for Your Business?
Until recently…not much. For the average brick-and-mortar business and even most online businesses, Bitcoin was an interesting concept without a lot of real relevance to their day-to-day dealings.
However, last September Circle Internet Financial, a startup backed by Goldman Sachs Group, Inc and located in Boston, MA, received New York’s first BitLicense. This license allows the to offer digital currency services within the state. Additionally, Bitstamp, a Bitcoin exchange, received a license from the Luxembourg Ministry of Finance to begin operating across the European Union, signaling what could be a large step towards real legitimacy as a currency.
While these baby steps are certainly being taken to legitimize the digital currency and bring it into the mainstream, Bitcoin isn’t something that most businesses are worrying about integrating into their operations at the moment.
However, this is changing.
Recently, online payment provider, Stripe, has started making it easy to accept Bitcoins in the same way that most websites accept credit card payments. And Square recently announced that it will begin bringing Bitcoin payments to point-of-sale systems, as well.
As Bitcoin grows in popularity and as security systems around exchange operations increase, it’s likely that more and more businesses will start accepting it. Last year, it was reported that over 100,000 businesses worldwide are now accepting the cryptocurrency. Although that's still a relatively small number, it does show support for an alternative currency.
Here are a few reasons why Bitcoin may be an option for business:
● Low transaction fees compared to traditional banks or credit card providers.
● The identity of the purchaser is kept completely anonymous, allowing for better security on the user’s end.
● All purchases made with Bitcoin are final, meaning no chargebacks and returns for businesses to deal with.
● Businesses can accept Bitcoin payments faster than most credit card payments, which can be a boon for small businesses without a lot of cash flow.
● No global transaction fees. Because Bitcoin isn’t tied to any single country, it can be traded across international borders cheaply compared to traditional currency.
At the moment, whether or not Bitcoin becomes widely accepted and used by businesses worldwide is unknown. However, it would certainly be worthwhile to keep your eye on this interesting cryptocurrency as its future unfolds.
Have you experienced Bitcoin yet? Tell us if you would consider using the cryptocurrency in our comments section below.