What is Bitcoin?
Bitcoin is a decentralized, digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network.
What can I do with it?
You can use bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.
Where does it come from?
Bitcoins are 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 when 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 keep the mining operations and supply in check.
This network also validates all the transactions through cryptography.
How does Bitcoin work?
Internet users transfer digital assets (bits) to each other 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 a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can do this, anywhere in the world.
There are 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.
These cashless transactions are fast and the processor can convert bitcoins into currency and make a daily direct deposit into the establishment's bank account. It was announced in January 2014 that two Las Vegas hotel-casinos will accept Bitcoin payments at the front desk, in their restaurants, and in the gift shop.
It sounds good - so what's the catch?
Business owners should consider issues of participation, security and cost.
A relatively small number of ordinary consumers and merchants currently use or understand Bitcoin. However, adoption is increasing globally and tools and technologies are being developed to make participation easier.
Users must carefully safeguard their bitcoin wallets which contain their private keys. Secure backups or printouts are crucial.
Bitcoin is not regulated or insured by the US government so there is no insurance for your account if the exchange goes out of business or is robbed by hackers.
Bitcoins are relatively expensive. Current rates and selling prices are available on the online exchanges.
The virtual currency is not yet universal but it is gaining market awareness and acceptance. A business may decide to try Bitcoin to save on credit card and bank fees, as a customer convenience, or to see if it helps or hinders sales and profitability.