The digital currency called Bitcoin has been in the news a lot lately, mainly for its wild value fluctuations. But it has also prompted a lot of discussion about what money actually is, and whether our present global banking system meets our needs in an Internet-connected world.
When people on opposite sides of the globe can connect via social media in a moment of shared interest, it seems sensible that they should want to engage in commerce with equal ease. Fee-heavy transactions that take days to go through just don’t fit the bill anymore. Add to this the growing concerns about insecurity in financial systems, and you have some pretty open-minded and lively debate about the long-term viability of the digital currency.
If you’re not yet familiar with Bitcoin, here is a quick introduction: Bitcoin is a decentralized cryptocurrency, meaning that it is not tied to any bank or government, and that it relies on cryptology to safeguard against counterfeiting. An additional level of security is achieved by the recording of all transactions in a public ledger. These transactions appear only as encrypted signatures and retain the anonymity of those involved in the transactions. There are fees associated with the transactions, but they are extremely low, since the decentralized system utilizes the computers of willing participants to process those transactions. Receiving fees (in bitcoins) for computing transactions is known as Bitcoin mining. If someone wants to get bitcoins, but doesn’t want to mine them, there are exchanges set up which (for a more sizable fee) will convert any currency into Bitcoin and vice versa.
If the use of Bitcoin continues to spread, it could provide a much cheaper and more efficient alternative to making online purchases with credit cards, or using online money transfer services such as Paypal or Net Banking. For businesses with a high volume of low-value transactions, those lower fees can mean a much higher profit margin, And this doesn’t just apply to e-commerce. Due to the widespread use of smartphones, Bitcoin is also an ideal solution for day-to-day digital transactions in the physical world.
But all is not rosy for Bitcoin. Because it has a built-in scarcity (no more bitcoins will be minted after the supply reaches 21,000,000), rampant speculation is giving the currency an instability that discourages everyday use. From an e-commerce standpoint, that volatility can be a huge deterrent to a larger e-retailer. But for the small business owner who is more focused on individual transactions, and is willing to take some risk, the experience gained in being an early adopter might offer a distinct advantage if Bitcoin becomes the new standard for global Internet transactions. Merely setting up a Bitcoin wallet and making a few personal transactions can offer some great insight into the advantages (and pitfalls) of digital currency. In business, being ahead of the game is everything.
Whatever the outcome for Bitcoin, one thing is clear: There is a strong demand for a more inexpensive and flexible way to pay for things in our digitally-connected world. Bitcoin, at the very least, is a viable consideration for the future of digital commerce.
For more information on Bitcoin, visit the official Bitcoin website.