Bitcoin is nothing but e-money or digital currency which was originally introduced by Satoshi Nakamoto who developed the first Bitcoin software. Bitcoin gives a decentralized approach to the creation and transfer of money, basically using cryptography, thus obviating the need of a central authority like a bank. Though it is not very popular yet, its use is increasing day by day. Though its not possible to buy bitcoins with paypal directly, there are alternatives such as coinmama which allows you to buy Bitcoins easily.
Bitcoin can also be converted to actual physical currency, and money can be exchanged for Bitcoin as well. Let us now look at the working, architecture and related terms in Bitcoin.
- Wallet: The Bitcoin transaction between 2 parties will start with the receiver sending his address to the sender, then the sender putting in the amount of Bitcoin and an optional transaction fee in the transaction message to be sent in the network. Then the sender signs off the message with his private key, and announces his public key to be verified by the miners in the network. And finally, the transaction is broadcasted for everyone to see. These last 2 steps are done by the Bitcoin software, which every user will have. This is the wallet which is like your personal wallet and is the safeguard for your Bitcoin. It contains internal as well as external private keys, which form a pair with each public key, and thus, the owner of the Bitcoin is the one with that private key. “Coinbase” is a widely used Bitcoin wallet.
- Block Chain: Once the transaction is publically put, it is informed to many nodes con the internet, making the transaction public, enabling people called as “miners’ to verify the signature and validate the transaction. Each of this transaction, along with its details, and a public key, is added to a block created by the miners. These blocks are linked in the form of a chain, and here comes into picture the decentralized approach where no one person has full control over each transaction, and any manipulation in one block initiates a chain reaction, and creates need for concurrent changes in all the consequent blocks in the block chain. Basically, the block chains contain a record of all transactions till date and they can be viewed by any user.
- Mining: Since there is no central authority, there has to be someone to validate and complete the transaction using the addresses of sender and receiver. This is done by ‘miners’. They have specialized hardware and software for the computational requirements. Miners gain Bitcoin by adding blocks to the block chain.
Decentralized approach, does not give the transaction power to a single authority like a bank.
Lesser transaction fee as compared to credits cards, paypal and banks.
Faster transfer of currency. Bitcoin transfer is much faster around any nook and corner of the world than the traditional money transfers.
No barrier of a country’s policy, does not reflect possession of money and cannot be seized like bank accounts.
It is anonymous.
Bitcoin can be easily lost if the your Bitcoins wallet is not secured and if all the private keys are not backed up. Apart from the visible private keys, there are internal keys too which might be lost in case of memory loss like a hard-disk crash.
It is more like a Swiss account, where if the private key is lost, then the Bitcoin are lost forever, with no way to retrieve them back.
Bitcoin transactions are one-way; it is not possible to revert them like PayPal or credit card. In such cases, the Bitcoin may get lost, with one party incurring the entire loss.
Hence, it is not at all advisable to do Bitcoin transactions with credit card or PayPal at one end.
Bitcoin are not widely accepted, generally no e-commerce websites accept Bitcoin payments.
Here’s why e-commerce website need to start accepting payments in Bitcoin:
- Bring in a wide range of customers:The advantages of Bitcoin like fast and low cost transfers are bound to attract more customers. Any business will expand if it provides customer service and is flexible enough to give in to the consumer needs. Accepting Bitcoin payments will thus open up an entire new world for the business.
- Still new, exploitation possible: Considering the fact that today almost no e-commerce websites accept Bitcoin payment, introducing it while there is no competition as so, along with lots of free publicity due to its need for expansion, will surely ring the bells hard.
- It’s all virtual: Adding this to their business, e-commerce websites can put in new offers, give gift coupons in the form of Bitcoin, have special offers on Bitcoin payments as it’s transaction is cheaper, and handling the Bitcoin is easier, all virtual and anonymity is maintained too.
Issues needed to be addressed:
- Securing the wallet: Bitcoin is completely virtual and can be lost if not properly secured. Security is a major issue with such large money on the stake and hackers getting more sophisticated day by day. Again, there is not risk cover or bank to secure you in case of frauds, as not central authority has control; plus Bitcointransaction being irreversible make it more vulnerable to non-recoverable losses.
- Wide fluctuations:The value of each unit halved in a single day when the world’s biggest Bitcoin exchange halted new deposited in Dec 2013.This means with no agency to control Bitcoin price stability, it is difficult for businesses to trust Bitcoin; though speculators find this to their advantage. One day each unit might cost $1000 while another day it may cost $2000. This might even work in favor of you, but it needs to be decided whether to risk it or not.
- How to refund when the Bitcoin prices have changed?
- Should it be considered an asset or currency? This is required to establish a company’s revenue. Its liquidity needs to be studied by an accountant.
- Just like the exchange rates vary continuously, the price of a product in terms of Bitcoin will too, and the business needs to account for it, to ensure it isn’t incurring a loss on the product.
To sum up, a stable, already popular, established business needs to think twice before accepting Bitcoin payment, but an upcoming, innovative business can shoot up and consolidate with an eye-catcher like Bitcoin payment.