Bitcoin is a digital currency which is created and held electronically. The currency doesn’t rely on governments or central banks, but is instead managed through a network known as a blockchain (read more about Blockchain here). Essentially, a Blockchain is an online ledger that keeps a secure record of every transaction in one place, so every time someone makes an exchange using Bitcoin, the transaction is recorded.
This peer-to-peer system, without the involvement of governments or banks, creates a new way of transacting, and with Bitcoin at the forefront of the digital currency market, it is creating a new way to make online payments.
Since it was released in 2009, Bitcoin has rapidly risen in value, catching the attention of financial institutions as well as the media, with the volatile nature of the currency contributing to much of its publicity.
A quick check of recent articles, and you’ll find reports of Bitcoin continuing to break records, recently fluctuating around $4,000 in value (it will have changed by the time you read this, like any currency valuation). In the UK at the time of writing, Google reported that one Bitcoin was worth £3292.40. Coinbase also reveals that the currency is up +649.4% since this time last year (again, this will have changed by the time you read this).
Increasingly, merchants and customers are using digital currency to make transactions, contributing to their growth and influence. In this relatively new and burgeoning marketplace, both buyers and sellers are recognising the huge advantages it offers. Here are just a few of Bitcoin’s benefits:
> Speedy transactions: In most cases, Bitcoin is instant. So, rather than waiting hours or even days for a payment to clear, merchants can instantly ship products out. Although more recently, with the increase in demand, the technology has been saturated and experiencing some delays, with recent reports noting that the transaction queue stretched back over six hours.
> There are no middleman fees: The decentralised system that Bitcoin operates on, cuts out the costly fees charged by banks for issuing or acquiring funds.
> High security: Bitcoin is extremely secure. It can back-up and encrypt your wallet’s digital keys, even storing your Bitcoins offline. Mobile apps allow you to securely access your wallet when you’re out and shopping in store too. And, because everything is recorded on a public ledger, or blockchain, this theoretically cuts down on fraud and embezzlement.
> Boosting trade with developing countries: Many developing countries don’t have access to the financial institutions we rely on, however, Bitcoin’s peer-to-peer system doesn’t need these middlemen, allowing for payments to reach their destination safely and opening the door to online retail across new territories.
> PCI compliance isn’t required: Because Bitcoin is secure by design, merchants simply need to secure their wallet and payment requests, and so when it comes to the usual rigorous security checks around e-commerce, there is no requirement to abide by the usual PCI compliance regulations.
The figures highlighted earlier in this article show Bitcoins meteoric growth, but on the downside, it is far more volatile than an established currency, like the British Pound or the US Dollar. In these early stages of its development, there is still a lack of confidence in Bitcoin, with some experts predicting that the Bitcoin bubble will soon burst. This, coupled with the lack of institutional control (which some people value from a stability point of view) and confusion over its tax status all add to uncertainty and volatility.
This fast, dynamic technology still fluctuates in value significantly, and this risk has put off some investors who believe that its future is still in question. Those who have invested will have done so with all the above benefits in mind and perhaps influenced by the predictions that Bitcoin will continue to rise significantly. It’s even been suggested that it will make up 10% of the foreign exchange market within 10 years.
The key to this continued growth lies in digital currencies becoming more established, recognised and adopted. If this happens, merchants will have a greater need to support cryptocurrencies as demand increases. Global e-commerce platform, Shopify, already supports Bitcoin payments to help its customers tap into this emerging market and many of their customers are already using the service. Major online retailers including Amazon, Expedia, Overstock.com, Etsy, eBay and content management system, Word Press also now accept Bitcoin payments, highlighting the shift within e-commerce towards digital currencies.
Bitcoin has already started to make an impression on e-commerce, but if it continues to progress as it has done, it is just the beginning. It is still early days but the tech is developing all the time and people are still getting to grips with it as a concept, its benefits and drawbacks. The main criticism is that Bitcoin is experiencing a bubble; once the hype dies down, so will its value and influence.
There are some benefits to Bitcoin that could ensure its long-term survival, however. Its innovative use of technology answers a number of banking and payment problems. Experts argue that because of factors like its accessibility across devices like our smartphones, and its simplicity to use as a technology, Bitcoin is in fact here for the long run.
As leading online retailers continue to add support for Bitcoin payments, it aids the adoption of the technology on a wider scale. To avoid being left behind, it’s likely that more and more e-commerce businesses will start accepting digital currency transactions to keep ahead of the curve in terms of how their customers want to pay online, rather than risk losing business.
Bitcoin has the potential to turn traditional banking on its head, allowing for fast, cheap, secure exchanges that give the people behind them control and dramatically changing how people make payments online.
This is an attractive proposition for the average person and merchants alike, and despite its volatility, many leading e-commerce businesses are already embracing Bitcoin.
Whether experts agree or disagree on its future, Bitcoin is currently showing no signs of slowing down, and this is exactly why online retailers should be keeping a close eye on the development of this and other digital currencies in the future.
As Secura's CTO, Dan is responsible for the team that design, build and maintain our cutting edge cloud hosting infrastructure. He is also the dishwasher police - stack it or else.
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