Bitcoin Basics

What is Bitcoin?

Bitcoin is a revolutionary decentralized digital currency and payment system that enables instant payments to anyone from anywhere in the world. It’s just like sending cash, but electronically. Bitcoin uses peer-to-peer technology to manage transactions, balance the ledger and issue money, functions which are all carried out collectively by Bitcoin “nodes”, the client software running on millions of personal computers all over the globe.

Bitcoin is the first successful implementation of an open-source, distributed, and non-counterfeitable crypto-currency. Building upon the idea that money can be any object or any sort of record that is accepted as payment for goods and services or the repayment of debts, Bitcoin uses computer code and cryptography to control the creation and transfer of money, rather than relying on central authorities such as private central banks or issuing governments.

But currency is just the first app for Bitcoin. Far more is possible, thanks to the Bitcoin blockchain: contracts, property titles, deeds, stocks, copyrights, derivatives and more can be recorded into and traded across the blockchain without the need for third parties or bureaucratic institutions. This feature alone promises amazing new applications that will be springing forth from the creative minds of developers and entrepreneurs. If you thought the advent of the internet was huge, you haven’t seen anything yet!

Why should a merchant be interested in Bitcoin?

Bitcoin’s primary benefits to merchants include:

1) No chargebacks. Bitcoin does not rely upon a central payment processor, so there is no way for a third party to reverse a transaction once it has occurred, just like cash. Refunds, however, can always be made at the discretion of the recipient/merchant.

2) No transaction fees. Bitcoin transactions cost just a few pennies and these fees are always paid by the buyer. Compare that to the 2% plus 20-30 cents per transaction that merchants typically pay for a credit card transaction. Merchants are guaranteed to save thousands of dollars each year on fees!

3) No PCI compliance requirements. Because there is zero chance of chargebacks, you have no need to collect or secure personal identity information (PII) from your customers. Say goodbye to costly PCI compliance costs and audits!

4) Payments in any amount, from anyone, in any country, instantly. Bitcoin makes online and offline micro-payments feasible for the first time ever and the entire world can now be your customer since bitcoin payments can be sent and received anywhere on the planet with a mobile or internet connection and without any foreign exchange fees!

Why should customers be interested in Bitcoin?

Bitcoin’s primary benefits to customers include:

1) Privacy. Customer buying habits and data cannot be tracked by advertisers or those with nefarious political agendas.

2) No identity theft. Because debit and credit cards have the account holder’s identity and financial data associated with them, this valuable information can be easily stolen, leading to potential economic losses for the customer. Just ask the 40 million card holders who had their account info hacked at over 1,400 Target stores on Black Friday in 2013.

3) Freedom to choose. Due to it’s decentralized nature, bitcoin accounts cannot be frozen or seized by banks, merchant providers, or governments, offering true freedom to those who wish to spend their bitcoins in any way they please.

4) No debt. Customers can only spend the amount of bitcoins they have in their wallet. Because bitcoins are not credit, consumers cannot go into debt by spending beyond their means. Just as important, because bitcoin holders can only spend what they have, there is no possibility of overdraft charges from a bank or card provider for spending over the limit.

Common myths about Bitcoin

1) Bitcoin is a “Ponzi Scheme”. One look at the definition of ‘Ponzi Scheme’ at Wikipedia will clearly show that Bitcoin is not a ponzi scheme. First, there is no central individual controlling the “scheme”. Second, there is no guarantee of a financial return for bitcoins purchased. Third, there are no upper levels of investors who rake in the profits while later investors are left “holding the bag”. Bitcoin is open to all who wish to entertain the risk and rewards that are common to all currencies and investments.

2) Bitcoin is “opaque”. This is a myth that is frequently used by journalists who haven’t done the technical research to understand that Bitcoin, indeed, is the most transparent public ledger of accounts that has ever been created. Each and every transaction is recorded and visible to the public via blockchain explorers such as blockchain.info and blockexplorer.com.

3) Bitcoin is for drugs and money laundering. The facts of the matter are that the US Dollar is the currency of choice for drug purchases and that the biggest banks are the number one money launderers,  yet no one in government or on Wall Street is calling for the elimination of the dollar or the closure of the money-laundering banks. An economic conflict of interest perhaps?

4) Bitcoin is anonymous. Bitcoin transactions are not anonymous since each one is publicly viewable and verifiable on the Bitcoin blockchain. More correctly, bitcoin transactions are pseudonymous because users’ identities are not explicitly attached to a Bitcoin address unless those users wish to publicly associate those addresses with their own identities. Just imagine the fiscal transparency that would be possible if every public entity, politician and corporation transacted openly on the Bitcoin blockchain — the days of Enron-style accounting would be gone forever.

5) I can’t buy x with Bitcoin. As an emerging cryptocurrency that’s only five years old (as of January 1, 2013), Bitcoin adoption certainly has much room for growth and adoption. That’s why BTC4BIZ.com exists — to help foster Bitcoin adoption and use at the local level. But to say that one can’t buy anything with bitcoin is completely false: just have a look at BitcoinStore.com, Purse.io, and Gyft.com — big screen TVs, computers, organic food, clothing, toys, shoes, books, hamburgers, hardware and more can be purchased with Bitcoin thanks to these very innovative business models. It is only a matter of time until eBay, Amazon.com, and your local gas station and grocery store will be directly accepting bitcoin due to it’s zero transaction fees, no chargebacks or PCI compliance, and ease-of-use.

Ready to get on board?

Grab a Wallet

1) Download free Bitcoin client software to your computer. The client software acts as your personal wallet for storing, spending and receiving bitcoins and it also connects you to your peers on the Bitcoin blockchain so that transactions can be processed and verified.  We recommend that those who are new to Bitcoin use the Multibit or Electrum clients because they are both open-source, multi-platform (Win/OSX/Linux) and very easy to use. Personally, I prefer Multibit because it allows for multiple wallets that can be used to segregate accounts (e.g. a personal account, business account, savings account, etc.) More experienced users may choose to download Bitcoin-Qt (the original Bitcoin client) or Armory (a very security-focused client). For Android and Blackberry devices, we recommend Bitcoin Wallet or Mycelium which is available for Android only. Unfortunately for iPhone users, Apple has decided to block Bitcoin wallet apps, so you’ll have to use an online wallet when going mobile. Our recommended online wallet provider is blockchain.info as they feature some of the best security features out there.

2) Fire up your client software and wait for it to connect to your peers (and the entire bitcoin network).

3) Set a password to protect your wallet/s from un-authorized spending. Without a password, anyone who gains access to your Bitcoin client could spend your bitcoins. Check the documentation for your particular wallet on how to do this.

4) Spend a few minutes familiarizing yourself with the client, its interface, features and functions. Most wallets feature three tabs or windows: a Transactions tab listing bitcoins received and sent, a Send tab which allows you to send bitcoins, and a Receive tab which lists your personal receiving addresses. If you have questions about anything, check for documentation in the Help menu, or visit the client’s official website.

Now, it’s time to get some bitcoins!

How to buy Bitcoins

Coming soon!