Like money, Bitcoin is a payment system. Unlike regular currency, which is regulated by a government and comes out of a central bank, it has no single administrator and is not physically stored in any particular location. Payment are made and received electronically using various wallet applications on mobile devices and computers.
Every payment is recorded in a public ledger called Block Chain Ledger. This is maintained by a network of servers that anyone can join. Every single Bitcoin transaction is recorded in this ledger and can be examined by anybody. In return for maintaining these ledgers, owners of those servers forming the network are rewarded with newly created Bitcoins. This only method of creating new bitcoins is called Mining.
Due to its decentralised nature, governments across the world are either treading carefully, hesitant or completely closed to Bitcoin. A currency that cannot be controlled and tracked does pose a number of issues. Australia is among very few countries that is open towards Bitcoin and has released tax guidelines around its use.
What’s awesome about it
Here are a few things we find incredibly amazing about Bitcoin.
Low or No Fees
In the vast majority of cases and unlike banks and credit cards, there are no fees to hold and transact in bitcoins. Some merchants may charge a fee of less than one percent but that’s only if you need them to prioritise the processing of your transaction for faster payments.
Starting an account does not require paper work, identification documents, huge security deposits for businesses and lengthy complicated approvals processes. Simply use one of many bitcoin wallets available for free and start paying and accepting bitcoins.
Secure and Fraud Proof
It uses military grade cryptography that makes it almost impossible to steal unlike your credit card details. For businesses plagued by chargeback frauds this is a great way to accept payment as Bitcoin payments are irreversible.
Simple and Fast International Payments
With most banks charging high fees and still delaying transaction for up to 3 days, international payments with Bitcoin can be completed in 10 minutes irrespective of the location. It’s free in most cases but may attract a fee of less than one percent for even faster transaction times.
For business and in some cases personal use where spending requires multiple authorisation, Bitcoin can be set up where payments will need more than just one person to sign.
There is no light without dark and although an evolution, Bitcoin comes with its own set of issues.
As a currency, Bitcoin is very new, the supply is limited and trading volumes are low. These are some of many speculated reasons for high volatility in its value. Starting at US$0.30 in 2011, peaking at US$1135 but dropping to $693 three days later and today 22nd July 2014 at US$624.85 (AU$665.47).
For businesses, this volatility makes it very hard to correctly price their products and services which in turn can affects consumers.
Countries are starting recognise the validity of bitcoins and in case of Australia have released tax guidelines. However invoicing, general accounting and reporting in bitcoins can become complicated and cumbersome.
It comes at a cost but credit cards and pay pal transaction do protect consumers from fraudulent businesses. With bitcoins, once the payment is made it cannot be reversed. This means you need to do your homework well before you pay anyone for anything.
Transacting in bitcoins is completely anonymous. Great feature when your identity needs to remain unknown. But for businesses legally required to verify the identity of their customers, bitcoins can be debilitating.
We believe in the future, the very near future, all money will be digital. Bitcoin is among quite a few digital currencies that are pushing their way into our lives. So far Bitcoin has been the most popular and widely accepted yet it is still under development. Technically speaking it is still in Beta. Its exact future is anyone’s guess but for now its advantages far outweigh its disadvantages and we think it’s here to stay.
This article was written by Austin D'Mello, Managing Partner of Vocatys, an emerging technology consulting company. If you liked this article please share it with your network. You can also subscribe to the monthly Vocatys newsletter by emailing us at firstname.lastname@example.org.