Bitcoin may seem like the elusive internet currency that isn’t quite relevant yet, but Bitcoin is steadily making its way into mainstream consumerism. Bitcoin is a decentralized virtual currency that allows anyone with an internet-connected device to instantly send or receive value to anyone in the world. Often referred to as a “cryptocurrency”, it costs pennies to use and operates independently from any one country’s currency. Bitcoin’s intrinsic value comes from its growing network of people and businesses willing to accept it in exchange for goods and services.
How does Bitcoin work?
Every Bitcoin user has a unique 25-character “wallet address” which can also be represented as a QR code. The keys to that “wallet” are encrypted and stored on their device so they own and can spend any value that is sent to it. Transactions are listed in a massive shared ledger called “the blockchain”. The blockchain ensures that balances and transactions cannot be forged or manipulated. Two independent third-party confirmations need to be made on the ledger to ensure the transaction is accurate before any value can be spent.
Where do Bitcoins come from?
Bitcoins are generated by people with powerful computers called “miners”. Miners receive a very small fee attached to each Bitcoin transaction in exchange for contributing massive amounts of computer processing power to the Bitcoin network. These systems use software to solve complex math problems that verify transactions on the blockchain and generate new bitcoins into the economy at a controlled rate. As more Bitcoins are generated, the complexity of the math problems to be solved increases exponentially, which means Bitcoins take longer to generate, and this forces the economy to grow naturally and organically.
Retail and Bitcoin:
As a merchant, Bitcoin is beneficial because of the lower transaction costs and limitless reach to international customers. Much like regular currency, a merchant’s most convenient option is to engage a third-party vendor to process their payments such as Coinbase or BitPay, but the fees are considerably less than with traditional methods like Visa or Mastercard. The cost for merchants accepting foreign credit card payments is often very expensive because of the varying fraud concerns, but bitcoin is able to mitigate this and offer more affordable options. Fraudulent chargebacks cost big businesses millions every year, however Bitcoin transactions cannot be reversed by a third party and are therefore immune to those types of losses.
As a consumer, the Bitcoin allure is obvious: Freedom. Freedom from the confined walls of standardized banking and boundless financial capabilities at a fraction of the cost. Consumers using Bitcoin will not experience currency conversion charges or the vulnerability some associate with international spending. As more and more large retailers begin to accept Bitcoin, the convenience and security of this self-managed digital currency could surpass that of most basic digital wallets.
Naturally we are seeing most early adoption coming from online stores versus offline, based on the digital properties of the currency. Overstock.com, a major online retailer, was the first notable acceptor of Bitcoin in the U.S as of January. Last week they became the first retailer to announce global acceptance and are expecting to see as much as 8 million in sales by years end. PayPal also recently announced it will begin accepting Bitcoin through one of its subsidiaries Braintree. Any companies running their payments through Braintree will essentially be a part of the partnership between the firm and Coinbase – who also do the processing for both Overstock.com and Reddit.
Bitcoin ATM’s are popping up across the globe. Canada is leading the charge with over 30 ATM’s, while the U.S has less than 20. Start-ups like Toronto-based Coinkite are capitalizing on the youth of the Bitcoin market by racing to be the first to create innovative Bitcoin products. Coinkite is creating familiar debit/credit-style terminals for easy POS integration. It’s one device that not only allows retailers to accept Bitcoin for their goods and services, but also lets them turn a profit by functioning as an exchange. They truly make it as natural of a process as we currently follow for using our bank cards.
As we continue to see devices and products come out that make Bitcoin easier to understand and use, it seems likely that consumers and merchants alike will embrace this new currency and change the landscape of retail forever.