Still Wondering If You Should Use Bitcoin? Read This.
Bitcoin is getting a lot of attention in the news this week with the value of a single Bitcoin surpassing $100, and the currency’s total value topping $1 billion. Naturally, a lot of questions are being asked.
Questions like: What is it? Is it the future of currency? How valuable can it get? How risky is it to use Bitcoin? One article even asks if “Bitcoin versus government” is the “new gun rights battle”.
Does your business accept Bitcoin payments? Do you use it to buy stuff? Why or why not? Share your thoughts about this currency in the comments.
First off, if you’re unfamiliar with the concept of Bitcoin, a brief explanation is probably in order. It’s a non-government-based, open source, P2P digital currency, in short. As Bitcoin.org explains, it’s also a protocol, and a software than enables instant P2P transactions, worldwide payments, low or zero processing fees and “much more”.
“Bitcoin uses peer to peer technology to operate with no central authority; managing transactions and issuing Bitcoins are carried out collectively by the network,” the site explains. “Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems.”
For users, Bitcoin compares the transaction process to that of email. That makes it sound pretty simple, doesn’t it?
“As a new user, you only need to choose a wallet that you will install on your computer or on your mobile phone,” Bitcoin.org explains. “Once you have your wallet installed, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose one of your Bitcoin addresses to your friends so that they can pay you or vice versa, you can pay your friends if they give you their addresses. In fact, this is pretty similar to how email works. So all that is left to do at this point is to get some bitcoins and to keep them safe. In order to start using Bitcoin, you are not required to understand the technical details.”
There are reasons why Bitcoin might appeal to the non-geeky. As Business Insider’s Henry Blodget writes on Yahoo Finance, “The premise and promise of Bitcoin–the part that appeals to folks who don’t happen to be gold bugs or cryptography geeks–is that the current plan is for only a finite number of Bitcoins to be created. This is in direct contrast to standard government-issued currencies, which governments can always print more of. If the supply of Bitcoins remains finite, this should theoretically eliminate inflation, which is one of the biggest drawbacks of paper money.”
In turbulent worldwide economic times like these, this presents a pretty interesting concept.
About a year ago, WebProNews talked to Bitcoin Lead Core Developer, Gavin Andresen. In light of recent developments, it seems worth revisiting some of what he had to say about the currency and its future.
Bitcoin breaks $100 on April Fool’s day; I expect an avalanche of “greater fool” headlines.
— Gavin Andresen (@gavinandresen) April 1, 2013
In the wake of a “press avalanche” following a controversy in which Bitcoin was being used in drug transactions, Andresen said, “Where the first couple of mainstream articles about Bitcoin caught the attention of other reporters, who in turn also wrote about it, which then triggered even more press. That was both great and terrible for the project: great because it drew a lot more technical and business talent to look at Bitcoin and start Bitcoin-related projects, but terrible because when people realized that Bitcoin still has a lot of growing up to do, the speculative bubble popped.”
“I think it is very likely the same thing will happen again sometime in the next few years as other parts of the world discover Bitcoin or it is re-discovered in Europe and the U.S.,” he said. “I expect the wild price fluctuations to diminish over time as Bitcoin infrastructure grows up and speculators start to get a better idea of the real value of Bitcoin.”
Indeed, many have now seen the value. Not only has the Bitcoin’s value surpassed $100, but there is a huge list of online and real world businesses that currently accept Bitcoin here. Even that is not all inclusive, as it is noticeably missing reddit, which recently announced that it now accepts Bitcoin for reddit gold.
If you’re a small business interested in accepting Bitcoin yourself, you’d probably do well to start with this walkthrough.
“If you expect that the number of people interested in using Bitcoin is small, you might simply start by posting a sign or a note: ‘We Accept Bitcoin’, and ask people to contact you directly in order to make a payment,” it says. “Even if hardly anybody uses Bitcoin as a payment method, you’re helping Bitcoin in two ways: one, by increasing awareness, and two, by making your customers more willing to accept Bitcoin as payment from others in the future, because now they know somewhere they can spend it.”
For selling goods or services on a website, it says, you’ll want to use a Bitcoin merchant solution to accept the currency. You can usually opt to have Bitcoins converted to dollars or other currencies automatically. For brick and mortars, customers can pay with their mobile phone apps, so the guide recommends placing a QR code near your register, so customers can quickly scan and pay.
“I tell people to only invest time or money in Bitcoin that they can afford to lose,” Andresen said in the interview. “There are a lot of things that could possibly derail it, ranging from some fundamental flaw in the algorithm that everybody has missed to world-wide government regulation to some alternative rising up and replacing Bitcoin.”
He did note at the time that he finds these scenarios to be unlikely.
He also had some interesting things to say about potential digital currency competition: “I think to overcome Bitcoin’s head-start, an alternative will either have to have a large company or government backing it and marketing it. Or else, it will have to be radically better in some way. There seems to be a perception that Bitcoin is in a winner-take-all race against other currencies; either everybody in the world will be using it for all of their online purchases in 50 years or it will not exist. I think the online payment world will like our current world of currencies – different currencies used in different places. The online payments won’t be divided by geography, though it might be divided by language or culture or social network.”
“I think there will eventually be one dominant currency that is used for 80% of worldwide online transactions,” he predicted. “But I think there will always be alternatives. The most likely outcome in my lifetime, the next 40 years or so, is most people will use their national currencies when purchasing goods and services from other people in their own countries but will use something else for international payments.”
Questions about the security of Bitcoin are likely to run through many heads, particularly as we read about sites and businesses being hacked nearly every day. The Bitcoin stance on this is essentially that the security is in your hands just as the security of your physical wallet is. It’s up to you to take the precautions. It is recommended that you backup your wallet, encrypt your wallet, “be careful with online wallets,” and use an offline back up for savings. This is all discussed a bit more here.
“To steal your Bitcoins, thieves would have to break into both your computer or smartphone and your bank,” Andresen said in the interview. “And, it would be impossible for anybody at the bank to steal them without first breaking into your computer.”
About a month after WebProNews spoke with Andresen, Bitcoin exchange service Bitcoinica became the victim of a $92,000 theft.
There is a lot of speculation out there about what Bitcoin can truly become, and that’s not likely to change anytime soon. Andresen tweeted that he enjoys “appropriately skeptical but accurate articles,” like “How Bitcoin could destroy the state (and perhaps make me a bit of money)” at The Spectator. Here’s an excerpt from that to give you an idea of what he means:
So. The first thing you need to know about Bitcoin is that it’s a peer-to-peer, digitised crypto-currency. No, please, don’t stop reading. Just hold that one in your mind while we talk about the second and third things you need to know about Bitcoin, which are far more exciting. For example, you can buy drugs with it! I mean, sure, you can buy plenty of other stuff, too, but I’m really not sure anybody actually does. According to one study, Silk Road, the main ‘buy drugs with Bitcoin’ website, has a monthly turnover of around a million quid. And thirdly — you’ll like this one, you capitalist Spectator types — its value is rocketing. A month ago — out of interest, rather than a desire for heroin, Mum — I bought £100 of Bitcoin. Two weeks ago, like, I said, it was worth £157. Today, it’s worth £213. Interested yet?
Actually, the second and third things aren’t as important as I made out. Mnyeh, drugs, you can buy them anywhere. And, sure, Bitcoin is bullish at the moment, but the value notoriously bounces all over the place (in 2010 somebody spent 10,000 of them on a pizza, a sum which would today make that pizza worth £465,368). So, no, far more interesting than the drugs and riches is the core idea, which is this peer-to-peer crypto business. For the non-tech-savvy among us, this basically means it’s not quite like any other currency we’ll have ever used. It doesn’t have a central bank. Nobody is in charge. A Bitcoin is a thing that simply exists, like gold.
There is a hard limit on the amount of Bitcoins that can be created, and that’s 21 million. That number is expected to be reached in the year 2140. Is Bitcoin’s future bright enough to last that long? Do you accept Bitcoin payments? Do you plan to? Do you use the currency to make payments? Share your thoughts about this interesting digital money platform in the comments.