What Is Bitcoin?

Created in 2009, Bitcoin is an open-source payment network that uses peer-to-peer technology to enable secure, monetary transactions without the involvement of a bank. In other words, you don’t need a credit or debit card or bank account information. Payments can even be made anonymously. Users can make payments by simply entering the recipient’s Bitcoin address and the payment amount, and hitting the “send” button.

Bitcoin uses cryptography software to ensure secure transactions instead of a central authority. It is owned and controlled by users, who are capable of using the software and Bitcoin version of their choosing. Essentially, Bitcoin is a mobile app or computer program that makes it possible for users to install a digital Bitcoin wallet on their computer or mobile device and transact digital currency, or bitcoins.

Many organizations, including restaurants, apartment complexes, and various Internet services, are using Bitcoin to conduct business. Records of all confirmed transactions are stored on the block chain, a shared public ledger that allows users to monitor their accounts and verify transactions.

Bitcoin Pros

• You can send or receive money from anywhere in the world at any time without the limitations (bank holidays, international borders, transaction limits, etc.) of a traditional bank or credit card transaction.
• Unlike banks and services such as PayPal, there are no fees for personal transactions with Bitcoin and very low fees for certain types of business transactions.
• Bitcoin users have complete control of transactions, eliminating the possibility of merchants sneaking in additional charges without the user noticing. Because no personal information is involved, there is less of a chance of identity theft.
• Bitcoin provides the transparency of the block chain, where all transactions are publicly available for verification. But the block chain displays only public Bitcoin addresses, and no personal information is tied to these addresses.
• Payment Card Industry (PCI) compliance is not required because no personal information is shared. While this can be a red flag for consumers, it does make it easier for merchants to implement Bitcoin.

Bitcoin Cons

• There is no other digital currency or service like Bitcoin in the world. As a result, there is a general lack of understanding about Bitcoin, even among companies that are already accepting Bitcoin payments.
• Bitcoins are both limited in number and high in demand, leading to a fair amount of price volatility. This volatility will only subside as Bitcoin gains wider acceptance, which could take years.
• If a user loses the device that holds the Bitcoin wallet, all bitcoins would be permanently lost unless the wallet is backed up or stored in more than one location.
• With no central authority, Bitcoin payments are irreversible, so you can only get your money back if the recipient decides to return it.
• Because Bitcoin transactions are anonymous, a number of payments for illegal activity have been reported.

Bitcoin is a new concept that can be confusing and overwhelming. It’s important to make sure you have a thorough understanding of how Bitcoin works before sending or receiving money for personal or business use. In a future post, we’ll discuss how the IRS classifies Bitcoin and explain why Florida regulators have weighed in on the use of Bitcoin.