So you go to your local parlour to buy a few things. Your total comes up to twenty dollars. You hand over a purple bill and the cashier gives you a receipt for the amount. No intermediary needed, payment received and proof of payment handed over in a friendly exchange by the two parties involved.
In that basic sense, trading the digital currency Bitcoin over the internet is just as simple, if not simpler.
What is bitcoin?
A bitcoin is basically a digital coin. You keep your coins in your digital “wallet” on your computer or even on a mobile device and trade them for goods and services over a worldwide peer-to-peer network.
The software is open source, meaning anyone can look at the code. The system is not monitored by any regulatory body and no centralised agency controls the rate of exchange. All records are kept on decentralised ledgers maintained by volunteers called miners across the globe who operate independent of each other.
How Does It Work?
Say you, X, wanted to send two bitcoins to a recipient, Y. First, you access your digital wallet and announce the intended transaction within the bitcoin network. You do this by using your private key, essentially a chunk of data that identifies you specifically, to note the details of the transaction.
N.B. – Akin to an online signature, your private key is accessible only to you and ensures the legitimacy of the transaction.
So you note i) who you are, ii) how many bitcoins you want to send, and iii) the intended recipient, Y. This information is “signed” and then sent out via a public key. Once public, it can then be added to a miner’s ledger.
Ledger entry recorded and that’s it. Y now officially has two bitcoins more and X has two bitcoins less.
In essence, a bitcoin is a digital log entry. Logs maintained by miners form a global blockchain which has recorded every single bitcoin transaction ever made. Miners “bid” to record the transaction on their ledgers through solving mathematical functions on their specialised computers. Whoever wins by solving the problem first gets rewarded with bitcoins created specifically for that purpose.
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Bitcoin and Business
So how beneficial could this new type of currency be for businesses? There are many advantages, and some disadvantages, in choosing to trade with bitcoin.
- Bitcoin is internationally accepted. Because there is no central authority controlling exchanges it can cross borders in most countries without restrictions. Once the party you are transacting with accepts the digital coins, buying and selling is as easy as pressing keys on your device. There are, however, four countries in the world where using bitcoin is illegal, Bangladesh, Bolivia, Ecuador, and Kyrgyzstan, so be guided accordingly.
- The verification processes is fast, less than an hour, so you won’t have to wait long for payments to be sent or received. It is also a foolproof process that cannot be refuted on either side, thus lessening the chances of disputes over payments arising.
- The current exchange rate is 1 Bitcoin = $TT 76,022.36 (as of December 4th 2017), so there is definitely value for money in play.
- There are minimal to zero extraneous costs with bitcoin trading. Because the coin is not tied to any bank or agency, there are none of the usual fees attached, so you spend only what you intended to spend every single time. The bitcoin network does offer a faster processing time for a small fee, but only if so desired.
- It is an unregulated network. While there are advantages to this, as stated above, this is a factor that might deter persons and companies from accepting bitcoin as valid. This might restrict who you can do business with, not just locally but globally.
- The exchange rate is unstable. Presently rates are high and seem to have growth potential. However, bitcoin has no regulatory agency making adjustments, the rate is determined solely by market forces. Taking the chance to invest in bitcoin therefore involves the risk of a sudden faltering market devaluing the digital currency considerably.
- Accounting practices will have to be revised. Traditional bookkeeping methods may have to be amended and specialised to accommodate the influence of this intangible debit and credit system. This might take some time and employees might need to be trained. Your business might get setback undergoing the logistics of establishing a bitcoin trading system.
Overall, bitcoin is capable of providing tremendous benefits to an organisation willing to take the chance. This does not mean that it is the right choice for every company. So take the time to research and ruminate over whether or not your business has the wherewithal to reap these benefits.