It’s no actual coin, it’s “cryptocurrency,” an electronic form of payment that’s produced (“mined”) by many individuals worldwide. It allows peer-to-peer transactions instantly, worldwide, for free or at suprisingly low cost.

Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and introduced it in 2009 2009. His true identity remains a mystery.

This currency is not backed by way of a tangible commodity (such as for example gold or silver); bitcoins are traded online which makes them a commodity in themselves.

Bitcoin can be an open-source product, accessible by anyone who’s a user. convert bitcoin to usd need is an email address, Access to the internet, and money to get started.

Where does it come from?

Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and searches for a particular data sequence (“block”) that produces a particular pattern once the BTC algorithm is applied to it. A match produces a bitcoin. It’s complex and time- and energy-consuming.

Only 21 million bitcoins are ever to be mined (about 11 million are currently in circulation). The math problems the network computers solve get progressively more difficult to help keep the mining operations and supply in check.

This network also validates all the transactions through cryptography.

How does Bitcoin work?

Internet surfers transfer digital assets (bits) to one another on a network. There is no online bank; rather, Bitcoin has been described as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling something or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell using this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can do this, anywhere in the world.

You can find smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.

How is Bitcoin valued?

Bitcoin is not held or controlled by a financial institution; it is completely decentralized. Unlike real-world money it cannot be devalued by governments or banks.

Instead, Bitcoin’s value lies simply in its acceptance between users as a kind of payment and because its supply is finite. Its global currency values fluctuate in accordance with supply and demand and market speculation; as more folks create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s value will rise. Banks are now trying to value Bitcoin plus some investment websites predict the cost of a bitcoin will be thousands of dollars in 2014.

What are its benefits?

There are benefits to consumers and merchants that are looking to use this payment option.

1. Fast transactions – Bitcoin is transferred instantly on the internet.

2. No fees/low fees — Unlike credit cards, Bitcoin can be used free of charge or very low fees. Minus the centralized institution as middle man, there are no authorizations (and fees) required. This improves profit margins sales.

3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who’s the only one who can receive it. The network knows the transfer has occurred and transactions are validated; they cannot be challenged or taken back. This is big for online merchants who are often subject to charge card processors’ assessments of if a transaction is fraudulent, or businesses that pay the high price of credit card chargebacks.

4. Data is secure — Once we have seen with recent hacks on national retailers’ payment processing systems, the web isn’t always a secure place for private data. With Bitcoin, users do not give up private information.

a. They have two keys – a public key that serves because the bitcoin address and an exclusive key with personal data.

b. Transactions are “signed” digitally by combining the general public and private keys; a mathematical function is applied and a certificate is generated proving an individual initiated the transaction. Digital signatures are unique to each transaction and cannot be re-used.

c. The merchant/recipient never sees your secret information (name, number, home address) so it’s somewhat anonymous but it is traceable (to the bitcoin address on the general public key).

5. Convenient payment system — Merchants may use Bitcoin entirely as a payment system; they don’t have to hold any Bitcoin currency since Bitcoin can be changed into dollars. Consumers or merchants can trade in and out of Bitcoin along with other currencies at any time.

6. International payments – Bitcoin is used all over the world; e-commerce merchants and providers can simply accept international payments, which start new potential marketplaces for them.

7. An easy task to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). Regarding possible wrongdoing, it really is easier for law enforcement officials to trace these transactions.

8. Micropayments are possible – Bitcoins could be divided right down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This could be a genuine boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).

Still a little confused? Here are some examples of transactions:

Bitcoin in the retail environment

At checkout, the payer runs on the smartphone app to scan a QR code with all the current transaction information had a need to transfer the bitcoin to the retailer. Tapping the “Confirm” button completes the transaction. If the user doesn’t own any Bitcoin, the network converts dollars in his account in to the digital currency.

The retailer can convert that Bitcoin into dollars if it really wants to, there were no or very low processing fees (instead of 2-3 3 percent), no hackers can steal personal consumer information, and there is absolutely no risk of fraud. Very slick.

Bitcoins in hospitality

Hotels can accept Bitcoin for room and dining payments on the premises for guests who wish to pay by Bitcoin using their mobile wallets, or PC-to-website to pay for a reservation online. A third-party BTC merchant processor can assist in handling the transactions which it clears on the Bitcoin network. These processing clients are installed on tablets at the establishments’ front desk or in the restaurants for users with BTC smartphone apps. (These payment processors are also available for desktops, in retail POS systems, and integrated into foodservice POS systems.) No credit cards or money need to change hands.