What is Bitcoin and Should Your Store Accept It For Payment?

Bitcoin

If you haven’t yet heard of Bitcoin, you’ve been living under a rock. With the Internet and media in a frenzy about this new digital currency, it’s important for any business or store owner to become acquainted with it and even consider introducing it in to their operations. People are trading Bitcoins every day for goods and services with individuals and businesses all over the globe; both online and offline.

And this isn’t a passing fad. The value of a single Bitcoin has soared from around $100 to well over $1,000 over the last few months. Luckily, you can send and receive Bitcoins in any fractions you wish. But first, you need to understand what it is.

The Definition of Bitcoin

Bitcoin is considered a peer-to-peer, decentralized, cryptocurrency (or digital currency). That probably wasn’t very helpful. Let’s break it down.

Peer-to-peer: Similar to peer-to-peer file-sharing software, when you send a Bitcoin to a person or business, they are sent directly from you to them. There are no stops along the way at payment processors, credit card networks, banking systems, etc.

Decentralized: Continuing with the previously-mentioned point, Bitcoin is not tied to or regulated by any banks, governments, or countries.

Crypto/Digitial currency: Instead of physical money like bills and metal coins, a cryptocurrency or digital currency is basically a heavily-encrypted file that is generated using complex cryptography and algorithms to both handle the validation of the currency itself as well as the transactions that take place.

Here’s a useful, quick video that gives a general explanation of Bitcoin:

The History of Bitcoin

In 2008, a paper was published on the Internet detailing a concept for a digital, peer-to-peer currency. The year after, software was released that allowed for the generation of Bitcoins via a complex computer process known as mining, and the transferring of them from person to person. The first 50 Bitcoins were then generated and the initial value of them was determined by a group of people on Bitcoin forums.

Popularity then increased when several high-profile websites, like WikiLeaks, began to accept them as forms of donation and payment. One of the biggest media events that drove the mainstream interest in to the digital currency was the FBI take-down of the highly-popular, underground, online market for illegal drugs known as the Silk Road, in October of 2013. You can get a complete history here.

It’s worth noting that at this time, over 100 cryptocurrencies have been developed.

How Bitcoins are Made (or, Mined)

Bitcoins are mined (or generated) by powerful computers running complex software on the network. They execute algorithms in hopes to eventually solve mathematical puzzles which, when unlocked, allow for the generation of new Bitcoins. The more Bitcoins that come available, the harder it is, and longer it takes for competing computers to unlock these puzzles and generate more coins. Yes, it is confusing.

Accepting Bitcoin as a Form of Payment For Your Store

First, let’s look at some of the benefits of this new currency:

  • It’s completely anonymous. Transactions and wallets containing coins are available on the network for anyone to view, but there is no personal information associated with them at all. No one knows who has what or who sent what to whom.
  • People all over the world are using this single, digital currency, as opposed to having to deal with local currencies, exchange rates, and legal issues when moving funds.
  • Transactions fees can be as little as nothing at all since there are no financial institutions or governments involved.
  • It’s 100% electronic.

And for the negatives:

  • It’s a very new concept.
  • Governments still have not completely decided on what to do with it and whether or not to allow it.
  • It’s widely used for illegal activities because it’s anonymous and free of government oversight.
  • The value of the currency fluctuates wildly.
  • It’s quite difficult to understand completely.
  • There is a cap on the amount of coins that can ever be generated.
  • A number of security breaches have caused millions of dollars worth of Bitcoin in loses.
  • There is inherently no real value other than what people will pay for it.
  • There are now hundreds of new digital currencies; but Bitcoin is by far the most popular and widely used.

When considering whether or not to accept Bitcoin at your store, we personally recommend the following guidelines:

  1. Since it’s unknown whether or not this trend will continue in to the future, it would probably be a good idea to only start accepting Bitcoins as payment if your eCommerce software can easily do so without much time, effect, and money. It would be a real waste if you spent months of time and a large amount of funds to implement the functionality required to accept this as payment just for it’s use to cease.
  2. Only accept Bitcoins if you’re able to at the same transaction costs as credit cards or less. As we mentioned, there are no transaction costs when dealing with Bitcoins, but since you’ll most likely need a company to help facilitate the transactions, there may be some costs involved.
  3. It’s probably wise to only use a provider that will accept Bitcoins as payment but pay you in cash; instead of collecting the actual coins. Of course, there is upside potential to holding on this currency if it continues to appreciate in value. Since it’s life, it’s gone from a few cents to over a thousand dollars per-coin. But, the same can happen in reverse. Your store depends on your assets and your cash-flow. You’re best avoiding currency fluctuations.
  4. Be sure that you have done your research on the topic extensively and only proceed if you have a full understanding of this new currency.

As for how you actually start accepting Bitcoin as payment; well, that’s a very difficult answer to give. It completely depends on the technology you are using to run your own store. If you’re running a brick and mortar operation, once you learn how to do personal transactions as well as safely store your Bitcoins, you can give customers your wallet address to send the funds to. But, if you’re online, you will need to consult either the company that provides the software for your store, or the technical people who built it. Our most-recommended online store platform is Shopify – and they, only recently, started allowing their clients to easily accept Bitcoins in their stores. If you’re using Shopify you can set it up in your Checkout settings under Alternative Payment, where you’ll find the option to use BitPay.

If you’re using another software, we have a guide to help you process Bitcoins for your e-commerce store.

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