What Is Cryptocurrency? Can Online Retailers Benefit?
Since then, Bitcoin has reached dizzying heights, valued at over $1100 early in 2014, be-fore crashing and surging several times since then. Right now, investors are cautious, but putting money back into Bitcoin, with it currently trading around $380.
Cryptocurrency And The Bitcoin
Bitcoin is the most widely known cryptocurrency – although there are others, all ending in “coin.” This suggests these are currencies implying central regulation and safeguards, usually in the form of a governing body. Except none of that exists when cryptocurren-cies are concerned.
“Satoshi Nakamoto” is allegedly the name of the creator of Bitcoin, although it’s un-known whether he is an individual or a group. Crypto-currency works as follows: digital coins are “mined” on hard drives across the world, with algorithms designed to keep a maximum of 21 million coins in circulation at any one time, to avoid inflation.
How Are Bitcoins Mined?
Engadget explains the mining process this way:
“Imagine that you’re an actual miner with a pickaxe in your hand, and there’s a big boulder in front of you with golden coins hidden in its very center. To get to the gold coins, you’ll have to chip away at the boulder: The better your equipment is, the faster you can go. As time goes by, though, you’ll notice that boulders become harder to break and the gold coins in the center become fewer in number.
The boulder in this case represents a block or a big bunch of transactions miners have to verify and solve. Each piece of rock a miner chips away represents a verified transaction, and the gold coins represent the bitcoins a miner can earn and introduce into the circu-lation.”
No one can control the flow of Bitcoins or other currencies. They are simply bought and sold, through exchanges, whereby they convert your actual cash you can spend in the physical world for a digital coin, or a percentage of a coin, depending on the exchange rates.
How To Store Cryptocurrency Securely?
Despite the fact that Bitcoin is closer to being a security (although the U.S. Securities and Exchange Committee is yet to formally acknowledge this) or a form of barter (ac-cording to Canadian regulators), you can still store cryptocurrency in a wallet.
A digital wallet at least, or if you’ve invested heavily and want extra security, you can put them in virtual cold storage. These wallets function similar to PayPal, except they can generate individual codes or keys when you want to buy something, or when someone is sending you money.
Benefits Of Accepting Cryptocurrency Payments
More businesses, even those outside of the tech sector and startup community are ac-cepting cryptocurrency as a form of payment for goods and services. There are several advantages for businesses, if you wanted to add Bitcoin or similar currencies as a pay-ment option:
- Minimal fees: compared to bank or credit card transactions,
- Security: allowing for anonymous transactions with heightened security, especially when utilising tokenisation,
- Customer choice: appeals to those who want to use cryptocurrency,
- Brand image: if you want to attract, or already serve, a more tech-focused crowd then you are demonstrating how much you value their custom by offering them a crypto-currency payment option.
The Future For Bitcoin?
Will it ever break out through the tech crowd and be something your grandmother gives you as a Christmas present? You can already deposit cash in Bitcoin ATMs, of which there are several hundred worldwide. You can also hold part of an investment portfolio in Bitcoin. More places are accepting it as a way of paying for goods and ser-vices, including Dell, Microsoft and Expedia.
Even Ben Bernanke, the US economist who served two terms as the Federal Reserve Chairman feels that Bitcoin, “may hold long-term promise, particularly if the innova-tions promote a faster, more secure and more efficient payment system.”
As for who’s backing Bitcoin: startups involved in the cryptocurrency space have over $1 billion behind them, with Wall Street investment banks, the New York Stock Exchange, the NASDAQ, along with Visa, MasterCard and Capital One taking a bet on this unregu-lated currency.
Perhaps as a result of more investment and greater scrutiny, the number of black mar-ket players using Bitcoin to buy and sell drugs or pay hit men has thankfully reduced. So have the thefts, which took place across some high-profile currency exchanges in 2013 and 2014.
A note of caution
Payment services, such as PayPal, Stripe and Square have integrated Bitcoin as a curren-cy option and some payroll startups have given their customers the option to pay staff in Bitcoins. At the same time, regulatory bodies haven’t caught up, which is where the greatest risk remains.
Central or Federal banks were created once it became apparent that financial security for a currency depended on safeguards being in place. For cryptocurrency to achieve that same level of security, there would have to be some form of centralised control, which is contrary to its evolution as a decentralised, peer-to-peer currency.
History has seen many alternative currencies come and go. Back in the Dutch Golden Age, in the 1630’s, you could buy a house in a beautiful part of Amsterdam for the price of one tulip bulb. The average salary of a craftsman was about 300 florins. A simple bulb, during what was known as Tulip Mania, could be worth as much as 3,000 to 4,150 florins. Naturally, this speculative bubble didn’t last. Like all others since, hype and speculation made some people very rich and destroyed the wealth of many more.
Whether Bitcoins have more staying power than tulip bulbs, time will tell. If innovation continues to make it more secure, we could very well see more people getting paid, in-vesting and even saving Bitcoins for a rainy day.