Should you Accept Bitcoins for Payments?

January 3, 2018 by Mobile Beat

Around the world thousands of businesses have begun accepting bitcoins as legal tender for purchases of goods and services. Additional companies have begun to consider whether to use bitcoins as a payment option.

Bringing bitcoins into your financial structure can boost your selling potential. But it also means that you and your staff will be delving into a whole new technology – one that seems unclear to many economic advisors

Should you add a bitcoin method of online payment to your business plan?

What Are Bitcoins?  

The Bitcoin currency appeared in 2009, calling itself the world’s “first decentralized digital currency.” There are several features of the bitcoin currency that make it stand out from traditional currencies. These include:

  • Bitcoins use a military-grade cryptography that ensures secure transactions
  • Payment processing with bitcoin is undertaken through a private network of computers. Every transaction is recorded on a “blockchain” which is a public record
  • Bitcoins are an international currency with no government affiliation, no bank affiliation and no central authority. It’s based on per-to-peer technology
  • New bitcoins are generated only to pay “bitcoin miners” – the people who complete complex mathematical tasks to approve bitcoin transactions on network-affiliated computers. 

Bitcoins were developed so that the world would have a virtual currency that isn’t subject to the whims of a national government or any central banking authority. The bitcoin method of cybercurrency spawned hundreds of additional cryptocurrencies but Bitcoin remains by far the most widely used and the most popular digital currency option. It’s the closest cryptocurrency equivalent to the traditional state-minted currencies.

Value

The value of a bitcoin is relative to the value of physical goods and other currencies. Bitcoin units can be subdivided and the smaller units represent lower values. At present the smallest Bitcoin unit is equal to 0.00000001 Bitcoin. It’s called the satoshi, The Bitcoin’s source code, however, is structured in a way that will enable future divisions beyond the satoshi level if the bitcoin’s value appreciates to the point that it’s deemed necessary.

In addition to being the most popular and widely-used, bitcoin is regarded as the most versatile cryptocurrency. It can be used to buy goods from an ever-growing roster of merchants (including from companies like Overstock and Expedia and casino players who gamble at Vegas style online games. You can exchange bitcoins with other private users to settle debts or for services performed. It can be traded both traditional and virtual currencies and on electronic exchanges that operate similarly to forex exchanges. Tax evaders and criminals use bitcoins because the cybercurrency’s structure makes it hard for authorities to trace its movements.

Highlights

There are several features of the bitcoin currency that make it unique.

Anonymity

One of the most notable highlights of the bitcoin cybercurrency is user anonymity. Bitcoin’s source code is loaded with privacy protections so that it can publicly record relevant data and Bitcoin transactions without revealing the identity of the groups or individuals involved.

Bitcoin users are identified by numerical codes “public keys.” These keys identify a user to other users. Sometimes users use pseudonymous handles or anonymous usernames. Users are further protected in concealing the flow and source of Bitcoins through special computer programs that are available to bitcoin users. These programs allow users to swap a specific Bitcoin unit for another Bitcoin unit of identical value privately which obscures the source of the owner’s holdings.

Block Chains

Each bitcoin has a block chain – an archive of all previous transactions. The block chains are stored in groups called “blocks.”  Bitcoin’s software network – the terminals and  server farms – are run by individuals or groups. These “miners”  produce new Bitcoin units, resulting in the authentication and recording of Bitcoin transactions. New blocks are also created through these block chains and these new blocks contains records as well.  In this way the Bitcoin block chain, grows over time.

Private Keys

Bitcoin users use their “private key – to spend or receive bitcoins. These keys are basically passwords that correspond to holdings. If a user loses his/her private key, s/he won’t be able to complete a transaction and access holdings. As with any Internet password, it’s recommended that the keys be stored in a safe location.

Bitcoin Exchange

At a bitcoin exchange a user can exchange bitcoins for a flat currency – Euro, Dollar, etc. Exchange rates vary. Bitcoins can also be exchanged for other cryptocurrencies. The bitcoin exchange takes a percentage of the transaction value..

Wallets

Each bitcoin user has a wallet where he stores his bitcoin units. The wallets are secure cloud storage locations. Some exchanges are more secure than others —  particularly online marketplaces, public wallets used by Bitcoin exchanges and “wallet services” which are websites that store Bitcoin.  

Miners

Miners are individuals or groups who keep block chains while supporting the currency’s value. Miners have access to powerful computers which perform complex mathematical tasks in an effort to mint new bitcoins. The miners then keep these bitcoins or exchange them for flat currency. The bitcoin source code harnesses this computing power to collect, record, and organize new transactions. New blocks are added to the block chain approximately every 10 minutes.

Pros and Cons

There are advantages and disadvantages to using bitcoins for your business. They include:

Pros

Liqudity – Bitcoin has a greater liquidity than other cybercurrencies. Users retain the bulk of its inherent value when they convert it to a flat currency (such as the Euro or Dollar). Not all cybercurrencies can be exchanged directly for a flat currency Some of those that can lose some of their value during the exchange.

Acceptance — You can buy virtually anything with bitcoin, thanks to new users such as Overstock.com.

International – Bitcoin is an international digital currency that easily crosses borders without any international transaction fees or bureaucracy. ATM and international credit card fees can reach 3% of transaction value and money transfer fees can reach as high as 15%. Bitcoin transactions however do not carry any of these costs.

Privacy and Anonymity – Bitcoin has built-in privacy protections that allow users to  separate their Bitcoin accounts from their bank accounts. It’s possible to track Bitcoin flows between users but it’s not easy to ascertain who those users are.

Cons

Safety – unlike flat currencies that are protected by their national governments, bitcoins can be vulnerable to fraud, scams and attacks. Law enforcement agencies are less likely to prosecute these types of illegal activities than they do when traditional currencies are involved.

Price Fluctuations — Bitcoins are susceptible to extreme price swings over short periods of time. Following one attack on a large user, the value of bitcoins fell by 50%. Speculative traders might benefit from these types of fluctuations but for long-term investors, the bitcoin is deemed unsuitable.

Chargebacks and Refunds – Traditional online payment processors and credit card companies offer chargeback and refund options for users – for instance, if someone bought something and it arrived broken, or never arrived at all. This isn’t possible when using bitcoins since no single party can arbitrate disputes between users.

Increasing numbers of merchants and businesses are using bitcoins and the list of investors in the cybercurrency is also growing. Before you join the rush, consider the pros and cons before deciding whether you want to offer the bitcoin payment alternative for your business.  

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