It’s all the buzz – Bitcoin is quickly becoming a name we’re equating with worldwide currency – which is exactly what it is. With the Cyprus problems and fears that come with the country’s financial collapse, there’s no denying the timing is right for Bitcoin. But before it becomes a household name, households must understand its purposes, its shortcomings and what it can and can’t do. This week, we take a look at the new digital currency.
Bitcoin is an open source P2P digital currency. P2P means person to person or peer to peer. Cash is also P2P – we use cash to pay other people, right? Bitcoin is the same thing, except whereas the dollar isn’t the currency of choice in other parts of the world, Bitcoin is more versatile and works across the board, regardless of the type of currency that’s traded in a country.
It’s allows worldwide payment options and it’s designed to reduce typical fees that we pay when we’re exchanging currencies in other countries. The technology is designed to work with no central authority and a network ensures the transactions are managed flawlessly. There’s no other system that can handle every global currency. The open source dynamic means it can grow and adapt with an ever changing global financial environment.
How it Works
This is the big question that once understood, makes it easier to understand the role Bitcoin is currently playing as well as the potential for growth that’s quickly arriving. There are a lot of technological bits that platform developers understand; for most of us, though, we just want to understand those basics so that we get a feel for how it will affect our lives.
New users on the Bitcoin site choose their wallets – this, of course, is determined by the currency they use. In America, we’re most likely going to use the dollar as our currency. You install it onto your computer, tablet or smartphone and from there, you generate a Bitcoin address. It’s a fascinating process, especially considering you can generate as many addresses as you need. For instance, you can provide one of your Bitcoin addresses to your friends and family so that you can cover dinner or go in for a group gift. It sounds confusing, but think of it this way:
Most of us have PayPal accounts and for some time now, we’ve coordinated those same methods using our email addresses to cover our portion of dinner or to help pay for Aunt Ida’s new large screen TV, right? All you’re doing is substituting your email address for a Bitcoin address. And if the multiple Bitcoin addresses confuse you, think about your different email addresses. For instances, most of us have a work email address that we don’t necessarily provide to friends – especially the ones who are prone to sending the less than appropriate jokes. Instead, we give them our personal email addresses. Some of us also have other email addresses we use when we’re signing up for newsletters or for use with our social networking sites. If you’re like me, you then direct all of those emails from the different addresses to your smartphone. Out of the five email addresses this writer uses, every single one of them land in my BlackBerry mail server and they all hit my phone. It’s the same thing with a Bitcoin address.
Once you have your Bitcoin account set up, you can then grab some bitcoins and keep them or send them out – just like you would with a PayPal address.
Yes – You Can Link Credit Cards
You can absolutely fund your Bitcoin account with a debit or credit card you already have. There were concerns that consumers would have to purchase a certain type of prepaid card, but that’s not true. You can easily convert your Bitcoins to dollars and then transfer them to your Visa, MasterCard or other credit cards. Here’s the thing, though – most of us are unaware of just what our credit cards are capable of. For instance, did you know there’s already a transaction classification on the Visa network? It’s been there for years and it’s called “Original Credit Transaction”. In fact, all of the credit card companies have these options. This makes Bitcoin that much more attractive and because they act much the way our traditional transactions do, there’s no frustrating learning curve. You can use your credit card to either transfer money to or out of your Bitcoin account.
Visa made its Personal Payments option available to American consumers and banks this year, as a matter of fact. This eliminated the need for a transaction to move through several different currency exchanges, which often took days. Now, though, it’s easy and near instant. The companies, known as digital currency exchanges, are able to easily move those through the right channels.
That said, there are cards and networks designed especially for Bitcoin. One of those cards is known as the Withdraw2card. The service itself doesn’t require any type of identification. Consumers aren’t even required to provide the three digit code on the back of the card. The funds can be added to any credit card or debit card, anywhere in the world and in any currency. The cost is around $9, but wiring cash, as we know, is costlier than a flat fee of $9 (and some require a small percentage of the total transaction).
There are concerns, though, that Bitcoin, because of its focus on anonymity, will become a way to traffic illegal drugs and other illegal activities. Indeed, it’s already become a bit of a problem as there are plenty of websites that offer for sell everything from exotic animals to illegal drugs and the sites accept Bitcoin. Clearly, there are problems, but for most consumers, Bitcoin is an idea that’s overdue and much welcomed. And, too, Bitcoin has opened up possibilities in areas of the world where bank accounts and other technology is near non-existent. Another prepaid card option is AurumXchange and its General Manager Roberto Gutierrez explains it this way,
Just counting countries alone where people don’t have access to bank accounts or foreign wires are highly taxed or scrutinized, such as Africa, Brazil and China to name a few, we have processed over 3,000 orders since we started a few weeks ago. North American and European customers have been using the service quite a lot as well…
There’s one more big announcement with Bitcoin: Look for Bitcoin ATMs in the very near future. Within the next couple of weeks, there will be these new ATMs found in Los Angeles and Cyrprus. From there, they’ll spread to other cities and in fact, the man who developed the technology says he’s already receiving requests from at least thirty countries. Jeff Berwick says the media attention in the past few weeks due to the botched bailout and bank run in Cyprus fueling the demand.
By removing the red tape, it’s an overall fine solution but that doesn’t mean it’s right for every transaction. Don’t forget that with our credit cards, there are protections we enjoy, such as zero fraud liability, and when we convert to Bitcoin, many of those rights are waived. It’s going to be a bit of a learning curve and there are sure to be growing pains, but the rapid recognition Bitcoin is enjoying, it looks as though this is here to stay.