Bitcoin is decentralized open-source software. This means that anyone has the ability audit and verify exactly how Bitcoin works. There is no central entity manipulating its supply or value; all bitcoins are transparently accounted for and are mathematically verified in real time. The whole network is backed by well-established cryptographic algorithms -- the same algorithms that are used in high-level computer security systems. The decentralized nature of Bitcoin allows for frictionless peer-to-peer payments without the need for third parties like banks or governments. Bitcoin users are in full control of their funds; it is impossible to force unwanted or unnoticed charges. Bitcoin assets cannot be frozen or seized, and no one can censor where you spend them. No personal information is tied to bitcoin transactions, protecting you from identity theft and making it the most secure way to transact online. Users can also protect their funds with encryption and backups.
The original technical paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published on the internet in 2008 under the moniker of ‘Satoshi Nakamoto.’ Not much is known about Satoshi; the name is known to be a pseudonym, and some speculate that Satoshi could be someone of any nationality, or even a group of people. Satoshi's anonymity sometimes raises unjustified concerns, many of which are linked to a misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly; anyone has access to review the source code functionality. Just like current developers, Satoshi can only make changes that are approved by the entire network, and therefore, Satoshi cannot control Bitcoin any more than you or I can.
Nobody owns the Bitcoin network, just like nobody owns the Internet. Bitcoin is maintained by anyone willing to participate. Anybody can download the software and freely join the network. While there are developers improving the software, they cannot force a change in the Bitcoin protocol unless everyone in the network agrees to it. Users can choose what Bitcoin software and version they use, which creates a strong incentive to maintain consensus.
Bitcoins are distributed by the protocol at a predetermined rate through a competitive and decentralized process called mining. Bitcoin miners run specialized computers to solve mathematical equations, which verify bitcoin transactions and secure the network. If a miner's computer is successful in solving the equation, the Bitcoin software will reward them with bitcoins. To keep bitcoin distribution consistent, the mathematical equation becomes easier or more difficult depending on how many users are part of the Bitcoin mining network. Miners also collect optional transaction fees as another economic incentive to secure the network. The software is programmed to release no more than 21 million bitcoins. As of July 2014, there are roughly 13 million bitcoins in circulation. About every 4 years, the number of bitcoins being released is halved. Bitcoins will trickle into creation up until the year 2140; however, the majority of the 21 million will be released by 2040.
Bitcoins derive their value from trust, functionality, and market supply and demand. Bitcoin satisfies all of the characteristics of money: durability, portability, fungibility, scarcity, and recognizability. Bitcoins cannot be counterfeited -- unique mathematical proofs are used to verify every bitcoin that exists. In short, Bitcoin is backed by mathematics and a transparent public ledger. With these attributes, all that is required for a bitcoins to hold value is public trust and usage. As Bitcoin’s functionality is now being realized, acceptance is growing exponentially around the world.
One bitcoin is divisible by one hundred million units, or 8 decimal places. For example, 1.00000000 BTC = 100,000,000 units of account. The smallest bitcoin unit is 0.00000001 BTC, which is known as a satoshi. Therefore, if you wanted to, you could just buy 0.00500000 BTC, and it would only cost a few dollars.
Like any other asset, the value of bitcoins will fluctuate based on supply and demand, market forces, and media hype. These market forces, however, should not be used as an indicator of Bitcoin's usefulness or functionality. The value of the bitcoin currency is not the same as the value the Bitcoin technology. Unlike fiat currencies, a limited number of 21 million bitcoins will ever exist. This creates a predictable scarcity, making bitcoins more scarce as time goes on. For reference, here is a historic chart on the value of one bitcoin.
No, Bitcoin is not a Ponzi scheme. Bitcoin does not promise any dividends or returns on investments. Just as people run Ponzi schemes with cash, people can also run Ponzi schemes with bitcoins. No technology can stop people from stealing, as this is innately a human issue. If someone is promising you returns on your investment, it most likely is a Ponzi scheme and you should avoid them. Always tread lightly and do your research when dealing with untrusted investment parties.
On the Internet, you can buy just about anything with bitcoins: houses, cars, pizza, and even trips to outer space. Adoption is now accelerating to storefront businesses, as well. Bitcoin offers tremendous benefits over other payment systems, and businesses are taking notice. Stay updated with our Bitcoin Directory page.
Yes, Bitcoin is one of the most secure ways to send and receive money. When Bitcoin is used properly, it completely protects you from identity theft and account seizures. All transactions are initiated by the user and are protected using a secure PIN code or passphrase. Also, with Bitcoin, recurring charges cannot be made without your knowledge and consent. Bitcoin truly is an empowering tool for personal and global economics, one that is unprecedented in history. For more information on properly securing your bitcoin, visit our Storage & Security page.
In the past, this was the case, but now there are applications and tools that have been developed to help make Bitcoin more accessible and secure for everyone. If you are in the Portland, Oregon area, consider coming to one of our free public workshops to learn more. Otherwise, take some time to study our Resources section, and you will understand how to use Bitcoin in no time!
Bitcoin is not anonymous, but is considered pseudonymous. All bitcoin transactions, addresses, and amounts are visible to everyone on the blockchain. However, addresses and transactions on the blockchain are just random strings of numbers that are not associated with any identities, unless deliberately revealed. Bitcoin digital wallets are free to use and require no personal identification or registration. If you are concerned about privacy, deterministic wallets and other privacy measures can be used. Check out our Storage and Security page for more information.
Information about obtaining bitcoins can be found on our Bitcoin Basics page.
Yes, bitcoins are like cash -- if you leave them unprotected, they may get stolen. There are many steps you can take to secure your bitcoins. When done properly, your bitcoins can be more secure than any currency or asset currently in existence. See our Storage and Security page to identify and understand the proper procedures for securing your bitcoins. Also, as the Bitcoin ecosystem continues to evolve, more user-friendly tools are being created, making it easier for everyone to secure their bitcoins.
Bitcoin, at its core, is simply a technology. Like any other technology, it requires knowledge and understanding to decide if it's worth investing in or not. Do your own research, and decide for yourself if it's a good investment for you. Bit Consultants do not offer any financial investment advice; we aim to help people understand and use Bitcoin.
Because Bitcoin is a decentralized payment network, fees are non-existent. Whether you hold the bitcoins you accept or convert them to USD through a payment processor like BitPay, there are 0% processing fees and no monthly payments of any kind. To compare, Square charges 2.75%, and traditional payment processors charge 3% or more, plus monthly fees. The only fee that could possibly apply with Bitcoin is an ACH fee of $0.15 per direct deposit to your bank account, but most major banks waive this fee. When transferring bitcoins between different digital wallets, a transaction fee (usually a couple of cents) is paid by the sender to ensure that the bitcoin transaction is verified in the Bitcoin network.
Not at all. To begin accepting bitcoin payments, all you need is an internet-connected mobile phone, tablet, or PC. Training staff is simple, as well, and there is no PCI compliance because Bitcoin completely protects your customers' personal financial information. If you'd like Bit Consultants to help you with the integration, our pricing varies depending on the type of business and point of sale system you have. Contact us for a free quote and more information.
Transactions are instantaneous and are confirmed approximately every 10 minutes. For small purchases, confirmations are not necessary. For large purchases, businesses should wait for at least 2 confirmations before considering the transaction complete. As the Bitcoin industry matures, transacting in bitcoin will become even faster and safer.
Payment processors (Bitpay and Coinbase) allow you to 'lock in' the current exchange rate of BTC/USD at the time of every purchase. This ensures that when you are paid in bitcoin, you will always receive the correct dollar amount that you charge for products and services.
If you're holding the bitcoin, you have access to the funds as soon as they are confirmed (about 10 minutes). If you are using a payment processor, your account is settled daily. Each business day, a direct deposit is made to your linked bank account in the amount of the previous day's sales. You should see the deposit in your bank account within 2 business days.
Bit Consultants are not accountants or lawyers; however, we can provide some basic information that you should know. Payment processors provide downloadable reports that you can integrate into your preferred accounting method. If you choose to instantly exchange all of your bitcoin earnings, your payment processor will automatically convert the BTC payments to USD and deposit them into your linked bank account. With this method, you will have no additional tax liability beyond the standard income tax applicable to your location. The IRS has stated that bitcoin should be treated as "property" for tax purposes. If you decide to hold bitcoin and cash out at a later date, capital gains taxes may apply, depending on your location. Please refer to IRS notice 2014-21 for more information.
Unlike credit card payments, all Bitcoin transactions are final and cannot be reversed. Refunds are issued at the sole discretion of the business. Also, personal information is never tied to bitcoin transactions, protecting your customers from identity theft and relieving you of the responsibility to collect and safeguard your customers' sensitive financial information. Escrow and payment processor services can also be used as an added layer of protection for the business and consumer.
You do not have to be online to receive payments; however, your customer will need internet access to send the payment, and in order to verify receipt, you will need to check the transaction status online. Bit Consultants do not recommend accepting bitcoin payments if you are unable to verify them.