Bitcoin

Bitcoin is a virtual currency that is monitored privately via a peer-to-peer network and consists of a limited amount of money. Bitcoins are calculated using data mining. This virtual currency is independent of state monetary policy and is not subject to the regulation of global financial markets. Bitcoins can be used in many online stores nowadays. You can convert Bitcoins into hard currency through online exchanges.

Background

Bitcoins have existed since 2009. There are all sorts of rumors about its inventor. Generally, a man named Satoshi Nakamoto is credited with the invention of Bitcoins. But it is widely believed that the virtual currency has been established by a whole group of developers.

How it works

Bitcoins are not printed like real money, but are produced in complicated calculation methods using encrypted algorithms. Requirement for transactions of Bitcoins are electronic wallets. These in turn consist of a key pair, which is in turn encrypted and created by a special software as a string of uppercase and lowercase letters and numbers. A private key is used to sign transactions. The public key is similar to a mail address. Other users can transfer bitcoins to it.

The whole procedure is based on a P2P protocol similar to file-sharing networks. Thus Bitcoins are not managed by a central server. If a payment is executed with Bitcoins, all other participants will be informed about it. This prevents Bitcoin payments from being made twice.

Glossary

There are a number of new terms that were established with the introduction of Bitcoins, which are presented here in brief:

• Block chain: This is a stored code of Bitcoins and the transactions carried out with them. This way it is ensured that a Bitcoin is not used twice.
• Exchanges: Bitcoins can be exchanged for real currency on these platforms. Worldwide Bitcoins are traded on 93 exchanges.
• Google Wallet: This is a virtual wallet which is used for exchanging Bitcoins.
• Mining: This denotes the method of how Bitcoins are calculated.

Advantages

Bitcoins represent a solid monetary amount that cannot be easily increased in value. Therefore, Bitcoins are not subject to inflation. You can make payments with Bitcoins on the Internet virtually anonymously and uncontrolled, in contrast to credit cards.

Moreover, Bitcoins are not subject to entities such as regulators or banks. Thus, the middleman is cut out and the money exchange takes place directly between the people involved in the payment transaction.

Criticism

This cryptocurrency is often suspected by state institutions to be used for money laundering or black money and money transactions of dubious origin because the payments are practically transacted outside of state control. Bitcoins transactions are conducted outside of the control of tax authority & Co. In the US, the FBI is always tracking down Bitcoin transactions from the criminal milieu.

Benefits for online marketing

The use of pure digital payment methods is not a new idea. For example, the cashback process or miles programs of airlines, are in principle, virtual payment methods. But Bitcoins are not products to increase customer loyalty. It is a currency whose price falls or rises. But due to increasing popularity and security when making payments, more and more people use Bitcoins.

Large mail order companies and NGOs offer their customers the option to pay with Bitcoins or donate bitcoins. Due to the strong price increase, it may be possible that the profits of companies and organizations are much higher than in real currency, namely when they sell the acquired Bitcoins again.

It is conceivable that in the future, much of the e-commerce business will be handled with virtual currency. However, it is still unclear how these revenues are to be assessed for tax purposes and whether countries recognize this currency.