What the Heck Is a Bitcoin Anyway?

What the Heck Is a Bitcoin Anyway?
Image credit: Illustration © John Weber
Magazine Contributor
2 min read

This story appears in the April 2014 issue of . Subscribe »

Q: My customers are asking to pay with Bitcoin. How does it work?

A: It's easy. On the surface, Bitcoin--a peer-to-peer payment system and digital currency not tied to any government--appears to be a financial breath of fresh air for small businesses. There are no annoying credit card fees, bank transfers or delays in receiving payments.

Anyone can send Bitcoins from a mobile phone, desktop computer or SMS to anyone else within seconds, for free. No government authority can seize those funds, and no bank can prevent them from being sent.

To learn how small businesses can tap into the Bitcoin economy, we contacted Stephanie Wargo, vice president of marketing for Atlanta-based BitPay, a platform that allows merchants to accept Bitcoin as a form of payment.

How does a business accept Bitcoin?
Using services like BitPay, they can accept Bitcoin via a website or even in a brick-and-mortar store. There's no cost to set it up, and fees range from free to 1 percent, depending on the service chosen.

At checkout, the customer selects Bitcoin as the payment option, at which time a BitPay tab will open. If they're buying something for $1,000, BitPay will show 1.16 BTC owed, at an exchange rate of $850 to 1 BTC [as of press time]. Instead of having to enter credit card and billing information, the customer simply scans a QR code on the BitPay page with an iPhone or Android app, or copies the merchant's Bitcoin receiving address to their online wallet.

BitPay will accept Bitcoin on the merchant's behalf, convert the payment to dollars, then send a bank transfer to the business's bank account in one day. Setting up the system is getting easier and easier as well. BitPay, which works with more than 20,000 merchants, has website plug-ins for some of the most popular online platforms, including Shopify, Magento, OpenCart and Zen Cart.

Is there a downside?
While U.S. regulators have stated that accepting Bitcoin as payment for goods and services is legal, they have made the licensing requirements difficult--but not impossible--for services such as BitPay to operate.

And there's the volatile nature of Bitcoins. They could be worth millions next year, or their value could crash to zero. No one knows. However, we do know that Bitcoin is like nothing we have ever seen. The money pouring into it and people involved may very well secure Bitcoin's place in leading a global monetary evolution.

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