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Bitcoin: Another option for merchants
has been gathering more and more media attention over the past year or so, but
when the price of a bitcoin unit went up to $266 on April 10, 2013 -- only to
fall to $125 the next day
merchants and consumers started paying a little more attention to this virtual
currency. The controversy surrounding bitcoin giants Mt. Gox and Bitfloor have
kept Bitcoin in the headlines as well.
Bitcoins are like currency because they can be used to make purchases. They're work similarly to commodities (such as gold), whose prices fluctuate, ase there's no fixed price for a bitcoin; it's a matter of supply and demand. Basically, at any given moment, bitcoins are worth whatever someone is willing to pay for them. It is a universal currency as anyone in any country can buy and sell bitcoins.
come into existence via process called "mining." When Bitcoin was
created, its creators "hid" bitcoins in blocks of data that can only
be unlocked by solving extremely complex mathematical problems. Individuals --
or, more likely, large groups pooling their computing resources, use their
computers to solve these problems, and, when they do, they're rewarded with
Bitcoins. Today more than 11 million bitcoins have been mined; the total 21
million won't be mined until 2140. The rate at which bitcoins are mined is
controlled by the complexity of the mathematical problems; if too many are
being mined, the difficulty of the problems increases.
To store bitcoins, the merchant or consumer must have a bitcoin wallet, which can be created on your computer or on a website that hosts them. That bitcoin wallet is given a bitcoin address, which is used to withdraw or deposit money into your account. The transaction is encrypted to make it more secure, and you can get a new bitcoin address for every transaction you make.
Bitcoin transactions are public, but those public logs display only the bitcoin addresses, so the transaction is not easily traceable to you. Transactions are validated through the Bitcoin network of computers; it can take 10 minutes or so to get that validation.
are the pros and cons of Bitcoin?
Second, a bitcoin transaction, once validated, is final. There are no chargebacks, which will come as a relief to merchants who often get chargebacks from a credit card 120 days after a transaction is made. Bitcoin also says there is less risk of fraud, because a transaction is confirmed or validated by an entire network of computers.
Third, because Bitcoin is a universal currency, available to anyone anywhere throughout the world, it's easier for merchants to accept payments from customers in other countries without the customer having to pay a foreign transaction fee.
Purchasers, however, may not like the fact that they have very little protection against a fraudulent merchant because they do not have the ability to dispute a charge (as they could with a credit card).
In addition, bitcoin wallets must be protected carefully. If you store your wallet on your computer, forget to back it up and then your hard drive fails, you've lost all of those bitcoins. The same thing can happen if you store your wallet on a bitcoin exchange site and the site closes unexpectedly before you can exchange the bitcoins to dollars and have them deposited in your merchant account. Your bitcoins could also be at risk if someone hacks into your business's computer system.
I start accepting payments in bitcoins?
Merchants who want to accept payments in bitcoins can set up specialized accounts with online companies such as Bitpay.com, Weusecoins.com, MtGox.com and Walletbit.com. These sites' services vary, but they generally offer automated payment tools for online and point-of-sale transactions and will usually either forward customers' payments in bitcoins to your bitcoin wallet or convert the bitcoins to dollars and place them in your bank account.
Weusecoins.com suggests that merchants ask these questions before selecting a bitcoin processor:
There are bitcoin payment solutions available for both online and brick-and-mortar retailers.
Bitcoin here to stay?
Two of the largest exchanges have run into trouble lately. On May 15, the Department of Homeland Security shut down Mt. Gox's account with payment processor Dwolla, claiming that Mt. Gox hadn't properly registered its American money transmitting and currency exchange operations with the Treasury Department. As a result, customers can no longer use Dwolla to buy bitcoins on Mt. Gox. Another popular exchange, Bitfloor, stopped operations in April, when its bank shut its business account down.
Practical eCommerce points out that, if governments have reason to believe criminals are taking advantage of the currency's anonymity for illegal purposes, they might crack down on Bitcoin.
Bitcoin itself cautions: "Bitcoin should be considered as a high risk asset, and you should never store money that you cannot afford to lose with bitcoin. If you receive payments with bitcoin, many service providers allow you to convert them instantly to your local currency." To protect your business and its assets, that's a step that you should consider if you want to start accepting bitcoins.
Published: May 17,2020