The world is raving about Bitcoins and it's inevitable that you have seen the term crop up in many places. You’ve also likely heard that you can do business with Bitcoins, but you’re not quite sure how. If you're looking to modernize, just staying up-to-date, or are looking for new growth potential through Bitcoin, then look no further. We’ve done the homework for you and all this week we will be featuring articles that can help you decide if and how your business can start cashing in on Bitcoin.
In this inaugural post, we’ll walk you through some basic Bitcoin terminology and how it all works.
Bitcoin is an electronic currency, backed by a large, complex cryptography system. Bitcoins are in limited supply, and new bitcoins are methodically introduced into circuit to prevent over inflation.
Bitcoins are used for electronic transfers and online shopping. That is instead of paying in cash or using a credit card, you can pay in bitcoins. Or you can receive a payment in bitcoins. You would have to create a ‘wallet’ and initially purchase a certain amount of bitcoins with other currencies. Once you have bitcoins, you can use them for whatever payments and transactions you want. You can store them securely online in your wallet for as long as you want. You can withdraw them anytime and convert back to your real world, local currency. It’s as simple as that. Of course, there is a whole lot of technology involved in making all of this work securely and efficiently.
Let’s get familiar with some frequently used Bitcoins terms:
Bitcoin vs bitcoin
While there is no "official" distinction between capitalized and uncapitalized Bitcoin, the official Bitcoin.org website utilizes "Bitcoin" to denominate the system and bitcoin to reference the bitcoins themselves. For example, "This T-shirt costs 0.05 bitcoins" versus "I love Bitcoin the system."
When you make a transaction using bitcoins, they are registered in the Blockchain, a digital transaction log which keeps track of the time and date of purchase as well as amount. This digital ledger records every bitcoin transaction ever processed, which allows the end-user to validate and verify their transactions.
There are only about 12 million bitcoins currently circulating, with currency rates is it stands today, that is about $1.5 billion in USD. Instead of new bitcoins being introduced via federal banks, any computer can run a bitcoin mining software to solve complex mathematical problems. Those computers that help solve such problems are rewarded with fractions of the newest bitcoin introduced to the circuit. Computers that run such software, and those who manage the computers, are known as “miners.”
A bitcoin wallet is a software program that stores your bitcoins. You use your bitcoin wallet to send and receive bitcoins. There are three types of bitcoin wallets - desktop wallets, mobile wallets and web wallets.
1. Desktop wallet - You can download and install this wallet on your desktop. Here you have complete control of your wallet. You're in charge of protecting your money and keeping backups. The electronic bitcoins are actually stored on your computer. Unless you have adequate backup and security, this may not be for you. If your computer crashes or is infected by a virus, you could stand to lose your bitcoins.
2. Web wallet - Here you can use Bitcoin on any browser. You should choose your web wallet with care because they host your bitcoins online. They should be reliable and provide adequate security and backup measures.
3. Mobile wallet - This is for those who are on the move frequently and want to carry their Bitcoins in their pocket. A mobile wallet is one that is created on your mobile device. You can use bitcoin transactions easily in physical stores by scanning the QR Code of the product.
Transactions of bitcoins are fairly straightforward for users, as it appears to be nothing more than direct transfers from one digital wallet to another. However, to keep the system secure and reliable, there is quite a bit more going on under the surface. Each bitcoin wallet has individual keys assigned to them, and when someone wants to make transfer, all they need is the key of the wallet they are transferring to. When a transfer request is made, it is sent to the bitcoin network where the “mining” computers pick it up to process. Transactions are broken into many blocks spread across the network, and it takes about 10 minutes to complete a transfer. Once the transfer is complete, it is added to the network’s blockchain.
Because wallet keys are just a long string of random characters, they are commonly substituted with a scannable QR code for mobile devices.
There are many services available that enable e-merchants to accept bitcoins as easily as they already accept credit or debit card payments. They normally integrate wallets as well—meaning you can create your online wallet with them and use it for all your bitcoin transactions.
As a business owner, you can set up a Web Wallet or a Mobile wallet. Brick and mortar stores can simply install any of these Bitcoin apps on a tablet or mobile and keep it in their stores to receive payments. Ecommerce or online stores can embed Bitcoin APIs from these same providers into their website. You can always use a combination of both.
If you’d like more details on how Bitcoins work, you can look them up at bitcoin.org. You should also check on our Moblized blog throughout the week, as we have dive further into the world of Bitcoin.
We hope this article helped you understand how Bitcoins work. We’d love to hear from you. Do leave your feedback in the comments below.
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