With everyone wanting a slice of the crypto pie these days,

1. Bitcoin: What Is It, and Is It Right for
Your Business?
OK,so what's Bitcoin?
It's not an actual coin,it's "cryptocurrency,"adigital formof paymentthatis produced("mined") bylots
of people worldwide.Itallowspeer-to-peertransactionsinstantly, worldwide,forfree orat verylow
cost.
Bitcoinwasinventedafterdecadesof researchintocryptographybysoftware developer,Satoshi
Nakamoto(believedtobe a pseudonym),whodesignedthe algorithmandintroduceditin2009. His
true identityremains amystery.
Thiscurrency isnot backedbya tangible commodity(suchasgoldor silver);bitcoinsare tradedonline
whichmakesthema commodityinthemselves.
Bitcoinisan open-source product,accessible byanyone whoisauser.All youneedisanemail address,
Internetaccess,andmoneytoget started.
Where doesitcome from?
Bitcoinisminedona distributedcomputernetworkof usersrunningspecializedsoftware;the network
solvescertainmathematical proofs,andsearchesforaparticulardata sequence ("block") thatproduces
a particularpatternwhenthe BTC algorithmisappliedtoit.A match producesa bitcoin.It'scomplex
and time- andenergy-consuming.
Only21 millionbitcoinsare evertobe mined(about11 millionare currentlyincirculation).The math
problemsthe networkcomputerssolve getprogressivelymore difficulttokeepthe miningoperations
and supplyincheck.
Thisnetworkalsovalidatesall the transactionsthroughcryptography.
How doesBitcoinwork?
Internetuserstransferdigital assets(bits)toeachotheron a network.There isnoonline bank;rather,
BitcoinhasbeendescribedasanInternet-wide distributedledgerBitcoinATMsNear Me. Usersbuy
Bitcoinwithcashor byselling aproductor service forBitcoin.Bitcoinwalletsstore anduse thisdigital
currency.Users maysell outof thisvirtual ledgerbytradingtheirBitcointosomeone else whowantsin.
Anyone cando this,anywhere inthe world.
There are smartphone appsforconductingmobile BitcointransactionsandBitcoinexchangesare
populatingthe Internet.
How isBitcoinvalued?

2. Bitcoinisnot heldorcontrolledbya financial institution;itiscompletelydecentralized.Unlike real-
worldmoneyitcannotbe devaluedbygovernmentsorbanks.
Instead,Bitcoin'svalue liessimplyinitsacceptance betweenusersasa formof paymentandbecause its
supplyisfinite.Itsglobal currencyvaluesfluctuateaccordingtosupplyanddemandandmarket
speculation;asmore people create walletsandholdandspendbitcoins,andmore businessesacceptit,
Bitcoin'svalue will rise.Banksare nowtryingto value Bitcoinandsome investmentwebsitespredictthe
price of a bitcoinwill be several thousanddollarsin2014.
What are itsbenefits?
There are benefitstoconsumersandmerchantsthatwant to use thispaymentoption.
1. Fast transactions - Bitcoinistransferredinstantlyoverthe Internet.
2. No fees/lowfees -- Unlike creditcards,Bitcoincanbe usedforfree or verylow fees.Withoutthe
centralizedinstitutionasmiddleman,there are noauthorizations(andfees) required.Thisimproves
profitmarginssales.
3. Eliminatesfraudrisk -Onlythe Bitcoinownercansendpaymenttothe intendedrecipient,whoisthe
onlyone whocan receive it.The networkknowsthe transferhasoccurredand transactionsare
validated;theycannotbe challengedortakenback.Thisis bigforonline merchantswhoare often
subjecttocreditcard processors'assessmentsof whetherornot a transactionisfraudulent,or
businessesthatpaythe highprice of creditcard chargebacks.
4. Data issecure -- As we have seenwithrecenthacksonnational retailers'paymentprocessing
systems,the Internetisnotalwaysasecure place forprivate data.With Bitcoin,usersdonotgive up
private information.
a. Theyhave two keys - a publickeythat servesasthe bitcoinaddressanda private keywithpersonal
data.
b. Transactionsare "signed"digitallybycombiningthe publicandprivate keys;amathematical function
isappliedanda certificate isgeneratedprovingthe userinitiatedthe transaction.Digital signaturesare
unique toeachtransactionand cannot be re-used.
c. The merchant/recipientneverseesyoursecretinformation(name,number,physical address)soit's
somewhatanonymousbutitistraceable (tothe bitcoinaddressonthe publickey).
5. Convenientpaymentsystem -- Merchantscanuse Bitcoinentirelyasapaymentsystem;theydonot
have to holdanyBitcoincurrencysince Bitcoincan be convertedtodollars.Consumersormerchantscan
trade in and outof Bitcoinandothercurrenciesat anytime.
6. International payments - Bitcoinisusedaroundthe world;e-commerce merchantsandservice
providerscaneasilyacceptinternational payments,whichopenupnew potentialmarketplacesfor
them.

3. 7. Easy to track -- The networktracks andpermanentlylogseverytransactioninthe Bitcoinblockchain
(the database).Inthe case of possible wrongdoing,itiseasierforlaw enforcementofficialstotrace
these transactions.
8. Micropaymentsare possible - Bitcoinscanbe divideddowntoone one-hundred-millionth,sorunning
small paymentsof a dollarorlessbecomesafree or near-free transaction.Thiscouldbe a real boonfor
conveniencestores,coffee shops,andsubscription-basedwebsites(videos,publications).
Still alittle confused?Here are afewexamplesof transactions:
Bitcoininthe retail environment
At checkout,the payerusesa smartphone apptoscan a QR code withall the transactioninformation
neededtotransferthe bitcointothe retailer.Tappingthe "Confirm"buttoncompletesthe transaction.
If the userdoesn'townany Bitcoin,the networkconvertsdollarsinhisaccountintothe digital currency.
The retailercan convertthatBitcoinintodollarsif itwantsto, there were noor verylow processingfees
(insteadof 2 to 3 percent),nohackerscansteal personal consumerinformation,andthere isnoriskof
fraud.Veryslick.
Bitcoinsinhospitality
Hotelscan acceptBitcoinfor roomand diningpaymentsonthe premisesforguestswhowishtopay by
Bitcoinusingtheirmobile wallets,orPC-to-websitetopayfora reservationonline.A third-partyBTC
merchantprocessorcan assistinhandlingthe transactionswhichitclearsoverthe Bitcoinnetwork.
These processingclientsare installedontabletsatthe establishments'frontdeskorinthe restaurants
for userswithBTC smartphone apps.(These paymentprocessorsare alsoavailable fordesktops,inretail
POSsystems,andintegratedintofoodservice POSsystems.) Nocreditcardsor moneyneedto change
hands.
These cashlesstransactionsare fastandthe processorcan convertbitcoinsintocurrencyand make a
dailydirectdepositintothe establishment'sbankaccount.Itwas announcedinJanuary2014 thattwo
Las Vegashotel-casinoswill acceptBitcoinpaymentsatthe frontdesk,intheirrestaurants,andinthe
giftshop.
It soundsgood - so what'sthe catch?
Businessownersshouldconsiderissuesof participation,securityandcost.
• A relativelysmallnumberof ordinaryconsumersandmerchantscurrentlyuse orunderstandBitcoin.
However,adoptionisincreasinggloballyandtoolsandtechnologiesare beingdevelopedtomake
participationeasier.
• It's the Internet,sohackersare threatsto the exchanges.The EconomistreportedthataBitcoin
exchange washackedinSeptember2013 and $250,000 inbitcoinswasstolenfromusers'online vaults.

4. Bitcoinscan be stolenlike othercurrency,sovigilantnetwork,serveranddatabase securityis
paramount.
• Usersmust carefullysafeguardtheirbitcoinwalletswhichcontaintheirprivate keys.Secure backups
or printoutsare crucial.
• Bitcoinisnotregulatedorinsuredbythe US governmentsothere isnoinsurance foryouraccount if
the exchange goesoutof businessorisrobbedbyhackers.
• Bitcoinsare relativelyexpensive.Currentratesandsellingpricesare availableonthe online exchanges.
The virtual currencyis notyet universal butitisgainingmarketawarenessandacceptance.A business
may decide totry Bitcointosave on creditcard and bankfees,asa customerconvenience,ortosee if it
helpsorhinderssalesandprofitability.
Are you thinkingaboutacceptingBitcoin?Doyoualreadyuse it?Share yourthoughtsandexperiences
withus.
You can learnall about bitcoinmining,blockchains (the database),minerpools,wallets,and
transactionsat https://bitcoin.org/en/orhttp://www.coindesk.comaswell asYouTube videos.