Your Essential Guide to Bitcoins
24 February 2014 by Daniel Lewis
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Did you know that you can now accept Bitcoin in your Shopify store? The payment system is now integrated alongside Paypal and Shopify’s own scheme in the 75,000 stores using Shopify across the world.
But what exactly are Bitcoins? How does the Bitcoin system work? What does the future hold for this new currency?
What are Bitcoins?
Bitcoins are a completely digital currency. That makes the process of buying and selling Bitcoins very similar to using more traditional payment methods like Paypal or Visa Credit Cards. However, Bitcoin differs from the major players in two ways:
1. It’s decentralized – While Paypal and Visa are owned by for-profit financial institutions that exist to please their shareholders, or other currencies are run and controlled by governments, Bitcoin is a peer-to-peer network that no-one owns or controls.
If you wanted to set up a financial service in the UK or US, you’d have to abide by a number of complex arrangements. Because it’s decentralized, Bitcoin isn’t governed or restricted by any government regulation – meaning that anyone can give or receive its currency.
2. It has its own currency – Bitcoin doesn’t help you to use dollars, pounds or EUROs online like Visa. The Bitcoin network allows users to buy and sell a new monetary unit, called Bitcoins.
In essence, Bitcoin is an imaginary currency. As you can see from this graph by BitcoinCharts.com, Bitcoin has skyrocketed in popularity since 2011 when one unit was worth approximately $0.30.
Because the use of Bitcoins is completely unrestricted and unmonitored, it should come as no surprise that the currency is used heavily by criminals in the buying and selling of drugs, information, stolen goods and worse. However, a growing percentage of Bitcoins are being used in an above-board way.
Here’s a quick guide to how Bitcoins work:
How can I get Bitcoins?
You can get hold of Bitcoins in two different ways. You can either buy them with ‘real’ currency or you can ‘mine’ them – which is a complicated process that sees people work together to process transactions in order to receive the reward of 25 Bitcoins when the ‘Bitcoin Foundation’ dispense new currency.
For an in-depth guide on how to ‘mine’ Bitcoins, check out TechCrunch.
Bitcoins and Shopify
In November 2013, Shopify announced that its stores will now accept Bitcoin payment. This means that people without Paypal accounts or even without a bank account can buy your goods and services online in a simple way.
When you receive Bitcoins you can either store them in your online ‘wallet’ and use them to pay for other services online or have them converted into a currency of your choosing. It’s also possible to buy Bitcoins with pounds, dollars and other currency. At the time of writing, 1 Bitcoin will fetch you $392.55 (or £261.92).
Here are some other reasons for Shopify businesses to accept Bitcoins:
- Fraud protection – Bitcoin payments are irreversible, so there’s no chance of losing money by processing an order only to find that it was fraudulent.
- Fast payments – Bitcoins don’t have a physical location, so payments are made in a matter of minutes.
- Visibility – There are billions of dollars worth of Bitcoins floating about in the online ether. Processing Bitcoins opens your business up to a brand new market.
- No PCI compliance – there are no extensive security checks with Bitcoin, ensuring that the costs aren’t passed down to consumers or businesses.
The future of Bitcoin
Many Bitcoin aficionados note the similarity between the birth of this new currency and the early growth of the internet. In the mid-90s, the birth of the internet made it easier than ever for entrepreneurs to use the online infrastructure to set up innovative, hugely popular services – and make huge amounts of money.
The infrastructure of Bitcoin could well empower people to create financial services that change the way that people buy and sell online. Watch this space.
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