Bitcoin—the most well known and widely-used digital currency—has been a popular topic of discussion since it was first introduced in 2009. While many people are still trying to figure out what exactly Bitcoin is, there are a growing number of businesses and individuals using it. Some say it’s part of the next financial revolution; others caution to be wary.
In case you are unfamiliar with the term, Bitcoin is a category of money called cryptocurrency that relies on cryptography to secure transactions. It was created by an unknown person/entity under the alias Satoshi Nakamoto. Rather than being issued by a bank, Bitcoin is a peer-to-peer payment network on the Internet and is an alternative to national currencies such as the dollar and commodity-based ones like gold coins.
The virtual currency can be bought and sold online as well as at physical locations. Bitcoin users set up a virtual wallet on a mobile phone or computer to store and spend their digital money. They are then given a Bitcoin address—similar to an email address—to pay with. Experts recommend only using a Bitcoin address once.
To pay for a good or service, individuals sign a transaction to transfer a certain amount of Bitcoin. The cryptocurrency utilizes a process referred to as mining. “Miners” use software algorithms to host a database of transactions, which are stored chronologically on the Internet through a public record called a Blockchain. In return, they can receive a nominal transaction fee along with newly-created Bitcoins. Bitcoins can be divided into smaller parts. The smallest divisible amount is one hundred millionth of a Bitcoin—called a Satoshi—after the founder.
Many large companies, such as Subway, Overstock.com and Expedia.com, are now accepting Bitcoins as a source of funds.
Due to the increased use of Bitcoin, engineering firms across the country are considering whether or not to accept the online coins as payment.
With money and engineering contracts so closely tied together, it is important to note that with the transmitting of currency through Blockchains, contracts are also being transmitted. This is a direct impact to business. A smart contract is essentially software that stores the rules for negotiating the contract terms. Using smart contracts and Blockchain eliminates the use of a central system for transactions. As a result, two parties can complete a transaction with each other using smart contracts and the information is stored on the Blockchain, which everyone has access to.
Before deciding if Bitcoin it is the right decision for your business, here are 8 things you should know:
Added Value: Adding an additional payment method for clients to pay in Bitcoin demonstrates that you are an industry leader. It can also help with brand awareness and increase exposure.
Lower Transaction Fees: Unlike traditional payment methods such as PayPal/Square and credit cards that average 2-6%, Bitcoin has zero transaction fees.
No refunds: Bitcoin payments are irreversible so it is crucial for businesses to keep track of payment requests.
Volatility: The value of a Bitcoin is determined by how much people are willing to exchange it for. When they were first introduced, Bitcoins were worth just a few cents. As of January 2018, a Bitcoin was trading around $11,060.49 per dollar. Many businesses are fearful that if they accept Bitcoin, they will later find out that it is worth substantially less in value. However, there are companies such as coinjar.com that offer software to convert Bitcoin to USD instantly.
Risk Factor: Since Bitcoin is not legal tender and has no central authority, many who are familiar with the virtual currency urge people to be cautious with the highly speculative digital currency. In the past, there were security breaches with exchangers and the online wallet. It’s also important to note that platforms that buy and sell Bitcoins can be hacked and others have failed. Experts recommend keeping your software up-to-date to ensure you receive security updates and your wallet is safe.
Privacy: Although Bitcoin transactions are anonymous, they are stored publicly so anyone can see the balance on your Bitcoin address.
Tax Implications: Virtual currency is subject to tax by the Internal Revenue Service (IRS). The IRS has issued guidance on the tax treatment of transactions using virtual currencies such as Bitcoins and other similar currencies.
Legal Implications: Many individuals and businesses have questions about the legality of using Bitcoin since it can vary substantially from country to country. Depending on where you are located and how you are planning to use Bitcoin, it’s important to stay up-to-date on the latest regulations.
Currently, a very small percentage of businesses are using Bitcoin, so it won’t likely make or break your business. Before making a decision, make sure to keep informed about new developments, check the regulations in your state and do your research.
Like this blog? Explore innovative ideas on the latest engineering topics on iConnectEngineers™ blog.
Stacey Phillips is a writer and editor at iConnectEngineers™. At iConnectEngineers™, we use engaging content, creative design, and smart campaigns to bridge the worlds of business, marketing and social innovation with a primary focus on the engineering and technology industries.