Bitcoin first achieved mainstream awareness during 2013. With its unpredictable price surges and sudden drops, intrigue and scepticism surrounding the virtual cryptocurrency abound in equal measure.
Bitcoin has reached dizzying heights in its short but colourful history: it was valued at over $1100 early in 2014, before crashing and surging several times since then. It currently trades at around $380.
Cryptocurrency and Bitcoin
Bitcoin is the most widely-known cryptocurrency in the world – although there are many others on the market in varying states of health and predictability. The term ‘currency’ implies central regulation and safeguards, usually in the form of a governing body. Cryptocurrencies do not, however, have this anchorage in bureaucracy weighing it down.
“Satoshi Nakamoto” is the near-mythical name of the supposed creator of Bitcoin, although it is unknown whether he is an individual or a group. Cryptocurrency fundamentally 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 in order to avoid inflation.
How Is Bitcoin Mined?
Engadget explains the mining process as follows:
“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 centre. 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 represents a block of transactions that miners have to verify and solve. Each piece of rock a miner chips away represents a verified transaction, and the gold coins represent the Bitcoin a miner can earn and introduce into the circulation.”
No one can control the flow of Bitcoin or other cryptocurrencies. They are simply bought and sold, through exchanges, whereby they convert actual cash that 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 than a currency (although the U.S. Securities and Exchange Committee is yet to formally acknowledge this), you can still store cryptocurrency in a digital wallet.
These wallets function similarly to PayPal, except that 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 and more businesses – even those outside of the tech sector and startup community – are accepting cryptocurrency as a form of payment for goods and services. There are several advantages for businesses that offer Bitcoin or similar currencies as a payment option:
- Minimal fees compared to bank or credit card transactions
- Anonymous transactions with heightened security, especially when using tokenisation
- Improved customer choice by appealing to those who want to use cryptocurrency
- A more tech-focused brand image
The Future of Bitcoin
Will Bitcoin ever break free from the tech sphere and become something your grandmother gives you as a Christmas present? You can already deposit cash in Bitcoin ATMs, of which there are several hundred worldwide. It’s also possible to hold part of an investment portfolio in Bitcoin. More mainstream retailers are now accepting it as a way of paying for goods and services, for example Dell, eGifter and Expedia.
Ben Bernanke, a US economist who has served two terms as Federal Reserve Chairman feels that Bitcoin, “may hold long-term promise, particularly if innovations promote a faster, more secure and more efficient payment system.”
As for who’s backing Bitcoin and the growing wave of cryptocurrencies: 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 all taking a bet on this unregulated currency.
Perhaps as a result of more investment and greater scrutiny, the number of black market players using Bitcoin to buy and sell drugs or pay hit men – for which cryptocurrencies have garnered a reputation – has thankfully reduced. So have thefts, which took place across some high-profile currency exchanges in 2013 and 2014. Slowly but surely Bitcoin is becoming a more credible currency, and one that merchants and payments companies need to have a solid understanding of.
A Currency Fraught with Danger?
Certain payment services such as PayPal, Stripe and Square have already integrated Bitcoin as a currency option, and some payroll startups give their customers the option of paying staff in Bitcoin. At the same time, regulatory bodies haven’t caught up, which is where the greatest risk remains. 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 de-centralised, peer-to-peer currency.
History has seen many alternative currencies come and go. In the Dutch Golden Age of 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.
Whether Bitcoins have more staying power than tulip bulbs only time will tell. If innovative measures continue to make cryptocurrencies increasingly secure, we could very well see even more people getting paid and investing Bitcoin, or even saving Bitcoin for a rainy day.
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