Bitcoins, in case you haven't already heard all the buzz about them, are virtual coins traded directly between two individuals online. They're exchanged anonymously without a trace and without ever passing through a single bank or other financial institution.
As a business owner, questions likely arise. How much is a Bitcoin worth? Should my business accept them? Is it legal? Is this the payment method of the future?
There's a lot to consider before deciding if accepting the decentralized, crypto-currency is right for your company. Here are four common questions about Bitcoin, explained:
1. What are Bitcoins and how much are they worth?
They are essentially pieces of computer code -- mathematical algorithms, actually -- that represent monetary units. Bitcoins are purchased online using real analog money via Bitcoin exchanges and private sellers. They're then used to trade goods and services on the internet, sometimes illegally. However, more reputable online vendors are beginning to accept Bitcoins, including WordPress, Reddit and dozens of Etsy vendors.
Approximately 11 million Bitcoins are currently in circulation. In all, only 21 million will be generated through the year 2140. A single Bitcoin is worth approximately $117 U.S. dollars, according to Tokyo-based Mt. Gox K.K., the leading Bitcoin trading exchange. Values can fluctuate dramatically from day to day.
2. Are Bitcoin transactions safe?
They are generally considered safe. Bitcoin transaction are secured using what's called public key cryptography encryption, a two-part encryption process that involves a combination of public and private data. Each transaction is publicly verified by the peer-to-peer community network of Bitcoin users.
3. Why would I want to accept them as payment?
Bitcoin can be attractive to business owners mainly because there are zero bank or credit card transaction fees to accept it, which can lead to higher profit margins, more competitive pricing and the ability to operate globally at lower cost. Also, Bitcoin transactions are not subject to tax since Bitcoin is not an official form of money issued by any government. And Bitcoin transactions are completed instantaneously and anonymously, without having to go through a third-party bank, credit card company or PayPal.
But the U.S. Treasury Financial Crimes Enforcement Network has issued rules about Bitcoin transactions and the IRS is expected to follow suit.
4. How can I begin accepting Bitcoin payments?
The first step is to create an account with a Bitcoin merchant solution that can help you accept Bitcoins. Mt. Gox is the most popular choice, but there are several others to choose from, including BitPay and BitMerch. Exchanges like these convert Bitcoins to U.S. dollars and other currencies for a nominal fee. For example, Mt. Gox charges up to 0.6 percent from each party for each payment.
Next, you'll want to post an image on your main website or online store that reads "Bitcoin accepted here."
If you sell goods and services from a brick and mortar location, your customers can pay in Bitcoins using a mobile phone app like Paytunia Bitcoin Wallet or Blockchain. Both require a QR code, so be sure to place one near your checkout area.
Related: A Look at 'Bitcoin' Currency
Corrections & Amplifications: A previous version of this story misstated how many Bitcoins are expected to be in circulation by the year 2140. In all, only 21 million will be generated.