Elon Musk is by and large a household name these days, not only for his creation of the first widely-used digital payment alternative in PayPal but also for being the engine behind the Tesla line of high-end electric vehicles. PayPal is well established, but Bitcoin is moving out of the shadows of the could-be class of digital technologies and yet next to no one will know who Satoshi Nakamoto is.
He’s the man who developed Bitcoin in 2009, and he’s acknowledged to be something of a ‘mysterious’ figure in the tech world. Here at 4GoodHosting, we’re a top Canadian web hosting provider, but we’re also keenly attuned to how many of your clients are operating e-commerce websites. Bitcoin is something of a buzzword these days, and as it continues to gain momentum there’s more than a few who are wondering how easy or not it will be to adapt Bitcoin as a payment method for customers.
Bitcoin is what’s come to be known as ‘cryptocurrency’ that is based on blockchain technology, rather than being regulated by a national currency, Bitcoin is considered by its proponents to provide unmatched privacy and security when compared to other currencies or payment systems, and without transaction fees or taxes. Where it’s iffy is that some of these same advantages also make Bitcoin appealing to those conducting criminal business online. In addition, security issues with Bitcoin exchanges and wallets contribute to its extreme volatility.
Still, its growing popularity cannot be denied, and we bet that it will continue to make inroads into the e-commerce world
A cryptocurrency is a subset of digital currency that is decentralized and structured on a set of algorithms and protocols that enable a peer-to-peer, cryptographically based payment mechanism, medium of exchange and store of value. It’s independent of external monetary value influences, and as such presents a more organic, interpersonal buyer / seller experience.
Bitcoin’s currency supply is created through “mining,” and transactions with it are conducted peer-to-peer before being verified by network nodes. The blockchain is where each transaction is recorded in a public database.
Blockchain technology is based on the concept of a distributed database, in which all transactions are broadcast across a peer-to-peer network of users, and an algorithm is used to validate the users and transaction. The transaction will most commonly be an exchange of cryptocurrency, but can encompass other types of data, such as contracts.
The database (aka the “ledger” in Bitcoin lingo) is the record of transactions and is automatically distributed by all networked nodes running Bitcoin software. Bitcoins are mined by writing a new portion – or “block” – of the algorithm, incorporating a cryptographic hash of the previous block plus a separate number generated to continue the algorithm. The creator of the new block is awarded a set number of bitcoins and can then verify them and claim ownership of it with public and private keys.
Some of you may also have heard of Ethereum. It’s another cryptocurrency, and there are also offshoots of Bitcoin with Bitcoin XT and Bitcoin Classic.
The general belief, however, is that Bitcoin is still 5 to 10 years away from widespread adoption
Pros and Cons of Bitcoin
Proponents of Bitcoin rave about its security and low transaction costs. There are no fees for receiving a Bitcoin payment, and fees for confirming spending are flexible. It can be traded across borders without extra fees, delays, or limitations, and with the fact payments cannot be reversed, you’re protected against the risk of chargeback fraud. Another plus is that processing payments does not require PCI or other regulatory compliance, and sensitive customer data is never stored. Multi-signature payment authorization for organizations and accounting transparency are also appealing for online retailers.
However, certain service providers will consider the irreversibility of payments a drawback, although it is important to note that the receiving party has the ability to reverse transactions. There is also the potential of coins being stolen by hackers, and the possibility of national regulatory measures may become a dissuading factor in the future. Bitcoin has been associated with online criminal activity at times, due to its use on platforms like Silk Road.
It would seem, further, that price volatility may be the greatest potential problem. In 2012, one bitcoin (BTC) was worth roughly $12. It passed $1,000 each in late 2013 amidst drastic fluctuations. A massive breach at the Mt. Gox Exchange led to the loss of 850,000 bitcoins worth an estimated $450 million in early 2014. Next, the price fell to roughly $200 in early 2015, but by the year’s end it had rebounded and more than doubled. It was worth nearly $800 per coin throughout 2016, and has spiked here in 2017.
In fact, The Economist reported that the price of a single bitcoin surpassed the price of an ounce of gold in March of this year. It’s definitely on the up as of now, but the currency’s propensity to volatility is well established.
How Web Hosts Can Accept Bitcoin
First, you’ll need to have a Bitcoin wallet to store your Bitcoins, and a public Bitcoin address to receive them. To accept payments in Bitcoin, businesses generally use a payment processing service, but it is not entirely necessary. Bitcoin community documentation recommends merchants use a full node and not a ‘light’ wallet, as it makes payment confirmation easier and makes you less vulnerable to hackers or the like.
BitPay and Coinbase are popular payment services for Bitcoin, and you can find a helpful guide for small businesses looking to implement Bitcoin payments at the Bitcoin Wiki.
Data indicates that in the vicinity of 100,000 merchants were accepting bitcoin as of 2 years ago, and there are now close to 300,000 Bitcoin transactions every day. We thinks there are several factors that will come to the forefront when a company is considering whether it’s worth it to set themselves up for Bitcoin, with the specific customer base, purchasing priorities and home jurisdiction being notable among many. The explosive growth and continuing development of Bitcoin and digital currencies make it important to pay attention to, and it’s definitely an emerging technology that’s worth keeping an eye on.