What is Bitcoin and how does it work?
At its most basic level, Bitcoin functions as a standardized peer-to-peer cryptocurrency that is “mined,” like gold or other precious metals, and used anonymously across the Internet and in select real-world locations. Users keep bitcoins in digital wallets, and spend them like any other form of money.
How are Bitcoin Transactions Secured?
Each Bitcoin transaction is audited at least six times by different computers in the network before the transfer is confirmed to the wallet owners. This ensures that:
- The transferring bitcoin wallet has enough bitcoins to complete the transaction.
- The agreed upon number of bitcoins are transferred from one wallet to the other, confirming the total number of bitcoins outstanding remains the same.
- The bitcoin balance in each wallet is correct following the transaction, confirming for a second time that the total number of outstanding bitcoins are correct.
Is Bitcoin Regulated?
Unlike paper money or credit cards, Bitcoin is considered a decentralized currency in that it’s not regulated by any government or financial institution. This is good for merchants because without any regulations in place, the fees for accepting bitcoins are much lower than those established by credit card companies. However, there are drawbacks.
Who Accepts Bitcoin?
Cold hard cash is still the most widely used form of currency – its acceptance is second to none. By contrast, bitcoin is currently only accepted by a small number of merchants. However, the introduction of bitcoin debit cards has helped address this issue – linked to payment processors, they make bitcoin spending much easier.
Can Bitcoin be Used Illegally?
While the bitcoin system provides users with increased privacy and protection against hackers, it can also finance a wide range of illegal activities. Unlike other peer-to-peer networks, such as those used for illegally downloading music or videos, the bitcoin platform is considered a more significant threat because of the high level of anonymity. There is real concern from government regulators around the globe that criminal entities are using bitcoin for shady business dealings, such as money laundering, drug trafficking and prostitution.
As you can see, there’s two sides to the coin here. Bitcoin has many advantages over traditional forms of currency, but it also has its drawbacks, due mainly to the fact that it is still a relatively new and emerging monetary system. Many people are just becoming aware of Bitcoin, and for it to succeed more consumers need to use it for transactions and more merchants need to accept it as a means of payment.
The future of Bitcoin remains to be seen. Some people swear by it and others say it’s doomed to fail. Whatever the case may be, it’s likely the platform will survive, at least into the near future. How and if you choose to use it will be determined by your business needs, your interest in learning a new technology, and your level of trust in a relatively new and unregulated system. It’s a choice you have to make for yourself: will that be cash, credit, or bitcoin?