Unless you’ve been living under a rock for the last year, you’ve probably heard about Bitcoin. But if you have no idea what it actually is and does, no one would blame you. Let’s take a look and give you the basics of Bitcoin.
What the heck is Bitcoin?
Bitcoin is a digital currency that does not require the backing of a central bank. It is controlled and regulated through a sophisticated peer-to-peer system.
How do I get Bitcoins?
There are a few different ways to acquire Bitcoins. First, you can exchange currency for Bitcoin online through an exchange, such as Bitstamp, or you can accept them as payment for goods and services.
Another way is to “mine” Bitcoins. Bitcoins are treated like cash but are mined like gold; there is a finite amount of Bitcoins that can be mined. Essentially, mining is the process of verifying Bitcoin transactions for others and being rewarded for doing so. In order to mine, you need to download the open source software. If you want to go into greater detail, check out an article by the Beatler here.
Is Bitcoin legal?
In terms of legality, it varies depending on the jurisdiction you reside and do business in. In Canada, Bitcoin is not considered legal tender, and the only thing the government is concerned with is users paying tax when making purchases with Bitcoin. For our neighbors to the south, Bitcoins are perfectly legal to own, trade and do business with as long as the business you are conducting is legal itself. The US government treats Bitcoin exchanges as money services businesses and treats them accordingly.
For a comprehensive list of other jurisdictions, check out this article by Forbes.
Why should I care as a business owner or investor?
- First and foremost, it would be wise to treat Bitcoin as you would treat any other high-risk start up. You need to weigh the risks and rewards in investing in this “cryptocurrency.” The potential pay off is huge, but Bitcoin’s trade value is infamous for being incredibly volatile. Bitcoin has experienced several bubbles and extreme fluctuation in value.
- Bitcoin was developed as an alternative to standard fiat currency (value derived from government regulation or law). As a business owner, it never hurts to include a new form of receiving payment, especially if it opens doors to a new customer segment. Accepting Bitcoin may be a way to differentiate yourself from your competitors. Also, a major advantage of Bitcoin is that it has lower transaction costs for businesses when compared to credit card companies.
- Diversifying your wealth in other forms of currency may be a wise decision based on the overall economic state of the world and the uncertainty associated with it, especially for Americans and Europeans. America has been facing tough economic times since the global recession of the late 2000’s. Just a few months ago, the federal government almost defaulted on its debt and it is no secret that many state and municipal governments have been struggling. These factors lead to major uncertainty in regards to the American dollar. For Europeans, the outlook is similar. Unrest in Ukraine mixed with struggling nations like Greece makes for a risky Euro.
Here’s a video that sums it all up for you: