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Bitcoin: A New Currency for Commerce?

Bitcoin: A New Currency for Commerce?

You may have seen the term “Bitcoin” popping up in the news lately.  And if you are like the majority of the world, you may be wondering what all the news and the hype is about.  For starters, the Bitcoin is something we should all become familiar with as it’s one of the new forms of virtual currency that is showing relevance and garnering a lot of attention in the media.

Bitcoins are beginning to be used as a source of currency for business and personal transactions. Companies such as Namecheap, WordPress, Reddit, and Flattr all use Bitcoins in their transactions, with Overstock.com joining the bandwagon next year. In fact, recently a Las Vegas resident put his home on the market for $7.85 million dollars and has decided to accept that money in Bitcoins as well.

But the question remains, are Bitcoins a reliable source of currency?  And more importantly, what is a Bitcoin, where did it come from, and where is it going?  Let’s start from the beginning.

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What is a Bitcoin?

Bitcoin is a type of virtual currency that is decentralized so it’s not controlled or monitored by any government, though Congress and several foreign governments have recently begun discussing BitCoin; regulations and acceptance.  Bitcoin is a digital coin that you can send through the internet, these transfers do not need to go through a third party or bank, but can be sent person to person, or business to business.  This makes it possible for the fees associated with Bitcoins to be much lower, eliminates restrictions (Bitcoins are allowed to be used in most countries), as well as requires no pre-requisites or qualifiers for someone to use Bitcoins as currency.  The goal of Bitcoins is to make a global market that allows for everyone to use this virtual currency without restrictions.

Where Did it Come From?

The Bitcoin was first developed in 2009 by the pseudonyms entity Satoshi Nakamoto.  The first Bitcoins were released that year as well.  Later that year, the Bitcoin market suffered exploitation in which unlimited Bitcoins were created.   Now, through the use of a program called a Bitcoin Miner, one can gain access to Bitcoins by doing a certain amount of work for each block of coins.  Now, to avoid exploitation, the coins are regulated by a predictable and limited production.

Is it Secure?

The issue of security and Bitcoins is one that remains in question.  First, let’s take a look at what happens when a Bitcoin is transferred from person to person.  Every person who has Bitcoins has a digital wallet that is reminiscent in appearance to PayPal or an online banking platform. When you transfer Bitcoins from your account to another account, an electronic signature is added to the transaction.  Then, the signature and transfer is verified and then permanently stored in the network.

However, questions about the security of this is raised because the Bitcoin software is completely open source and anyone can review the code.  Bitcoins can’t be faked or cloned like other currency, which inherently very secure. But, thefts can steal Bitcoins, but it’s a risk that is the same with anything other currency. Recently, BitFloor, a the biggest Bitcoin exchange in the United States lost over $250,000 worth of Bitcoins when their servers were compromised. However, this issue was on the server side of BitFloor, not an inherent issue with Bitcoins in and of themselves.

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Secondly, the value of the Bitcoin fluctuates.  Bitcoins are not backed up by anything except for their demand and the merchants who accept Bitcoins as a viable form of currency.  This means that as merchants either accept or deny their use, the value of the Bitcoin will fluctuate accordingly.  It’s the law of supply and demand.  Therefore, the value of the coin is not secure.  In fact, recently in China, the largest exchange for Bitcoin has declared it will stop accepting deposits in yuan, which is China’s local currency.  This change has brought about a decrease in value by 18% in just a few days, and overall Bitcoins value has dropped by one half since November.

Why do Businesses and People Use Bitcoins?

Many people use Bitcoins because of the freedom that comes with it.  Many feel that because it is decentralized, it provides more freedom for transactions which allows for more control over one’s money.  In addition, the fees associated with Bitcoins are very low compared to Paypal or credit card transactions, which makes transactions more attractive to some users.  Finally, Bitcoin supporters generally feel as though these transactions are more secure than the average internet transaction.  Why? Because Bitcoin allows users to make transactions with little to no personal information making identity theft much harder.  In addition, people like to have control over their money and transactions.  With Bitcoin, merchants are not allowed to put unwanted fees or charges to transactions, which can be the case with other merchants.

What about you?  Would you ever consider using Bitcoin as an acceptable form of currency on your site?  Why or why not?  At Taylor Digital, it is our mission to help you succeed online in whatever manner that is.  If you need help setting up an ecommerce store, or guidance in deciding if things like Bitcoins or Paypal is the best option for your customers, please give us a call today at  949.391.3333 at extension 701 today.

Randy TaylorBitcoin: A New Currency for Commerce?