The internet is undoubtedly one of the most fascinating things in the modern world. At some point not too long ago, we thought wearable technology was something thought to be only in spy movies. Now, they’re available for any consumer to purchase. We once thought that smart homes and robots were exclusive to the post-apocalyptic world of the far-out future. Today, we can program our houses and have robotic technologies clean our homes for us – at the touch of a button. So this begs the question – what’s next?
In a world full of seemingly never-ending technological revolutions, one thing is for sure: the world will continue to innovate. Bitcoin is one of those innovations that happen to be on the rise in the digital world and may just be the future of currency
Bitcoin is a form of digital currency (there are no actual coins as pictured above!), where people can send and receive money online. It sounds very similar to Paypal or Visa, right? However, there are two key things that differentiate Bitcoin from these other financial networks.
Unlike Paypal or Visa, Bitcoin is decentralized, meaning that no one owns or controls it. It’s a peer-to-peer structure, with hundreds of servers all over the world working together to process transactions.
Because Bitcoin is decentralized, it means that it’s the world’s first open financial network. In order to create a new financial service in the conventional U.S. banking system, it’s required to adhere to strict, complex rules. With the Bitcoin network, people don’t need permission or assistance to create Bitcoin-based financial services.
The second difference between Bitcoin and Paypal or Visa, is that Bitcoin operates on its own currency. This Bitcoin currency is independent from conventional financial currency, and is cleverly called: Bitcoin.
You’re most likely laughing about the concept of an open currency system, wondering how it could possibly work. (I, too, was a skeptic) But the market statistics are proving the naysayers wrong.
Since the public launch of Bitcoin in 2011, there’s been noticeable fluctuations in their value. However, it’s hard to deny the upward trend we’re continuing to see throughout the years.
The idea of a financial system free of restrictions has generated interest among venture capitalists. Startups such as Bitpay, which helps businesses process payments through Bitcoin, has raised over $32.1M from a collection of investors. Coinbase, a startup that helps consumers buy and sell Bitcoins, raised over $75M in their last funding round. It seems like digital currency is proving to be a viable market.
So what’s getting people so excited? Advocates and supporters of Bitcoin (over 78.1M people strong, by the way) believe that the peer-to-peer architecture and low entry barriers will allow for a new generation of innovative financial services, just as the internet opened the doors for new online services.
We’re used to a conventional system, where new money is created by a central bank, such as the Federal Reserve. Since Bitcoin doesn’t have a central, bank, the system has an alternative mechanism for introducing currency into circulation.
As we said before, there are hundreds of computers and servers scattered around the internet, working together to process Bitcoin transactions. These computers are called “miners,” and Bitcoin’s transaction-clearing process is called “mining.” On average, every 10 minutes a Bitcoin miner wins a computational race to get a prize. The prize is currently 12 bitcoins, worth about $8,850. The rewards provide an incentive to join Bitcoin’s transaction-clearing process, assisting the currency is remaining decentralized.
This process can be very difficult to comprehend, but this article has some great explainer videos and infographics on how the mining process works. You’ll find that the reward gradually declines on a fixed schedule: every four years, the reward is cut in half. It is now 12 bitcoins, with the reward falling to 6 in 2020, and so on. The system is setup to never allow for more than 21 million bitcoins in circulation.
While businesses are slowly adopting the use of Bitcoin, it’s becoming a more popular method of payment. Here’s a few good reasons to consider accepting Bitcoin for your business:
Payment can be as easy as scanning. Lots of businesses are taking advantage of the unique QR codes for each Bitcoin wallet. Once you sign up for a wallet at some provider like Coinbase.com, you can place your unique QR Code on invoices, business cards, or in your emails. The customer can scan it using their phone and pay you instantly.
Near-instant payment settlement. The biggest benefit of using Bitcoin for business is the fact there’s no charge-backs. Once someone hands you digital cash, there’s no third-party that can reverse the transaction. Bitcoin-based transactions are usually final after three steps, taking less than 30 minutes. Other alternatives, like Paypal or credit cards, aren’t finalized until the sender’s chargeback window has closed. This can take up to a few months.
Bitcoin wallets make it easy to take with you on trips. If you’re traveling quite a bit on business, there are several wallets and apps readily available. You can get a bitcoin debit card in several different monetary denominations, making it convenient (and less-expensive) for international travel. These debit cards link to Visa or Mastercard pay stations, making it super easy to make purchases. If you’re in a place that accepts cash-only, no problem! You can convert cash into local currencies from ATMs.
International payments are easier. In comparison to conventional financial systems, Bitcoin transactions allows for businesses to make international payments faster, during weekends or holidays, and with much lower fees. What’s not to love about that?
Transparency in accounting is back. The recorded data cannot be tampered with. Once the transaction is sent, it can’t be edited, deleted, or changed.
A common concern in Bitcoin is the question of whether or not the fluctuations in Bitcoin value will severely impact the nation’s economic climate. The short answer is: no. In order for Bitcoin to directly affect a nation’s economic health, it would have to be considered what economists refer to as “a unit of account.” Simply put, Bitcoins aren’t intended to replace the current financial system, or determine the value and costs of goods. If Bitcoin was a standard currency, its fixed supply would pose a serious risk of the next economic downturn.
With that said, there is a ton of opportunity for Bitcoin to complement conventional financial systems. Paypal complemented the existing financial network because they saw an opportunity to better meet people’s’ needs. Bitcoin’s open network allows it to be just as, if not, more disruptive. People aren’t likely to abandon conventional financial networks altogether, but it’s possible for Bitcoin-based services that provide particular services more efficiently or affordably than traditional alternatives.