The way payments are handled has changed a lot thanks to the advent of concepts like the credit card, and new technologies, like online transactions. But one of the most interesting new developments in the world of payment processing is the currency known as the “Bitcoin.” Some may have heard the word before, and while there’s a general understanding that this is a new type of currency, there can be a lot mystery behind the way it works. So what is Bitcoin? How does it fit into the current system of currencies and payments?
While money itself is a human invention, it has usually been the result of different people working with different economic needs over the centuries. So while the British Sterling Pound has been with us for quite some time, the Euro, for example, is a more recent—but still traditional—form of currency that is designed to simplify monetary exchanges throughout the many nations of Europe. All current forms of currency are based on the idea that the paper, coins, or digital numbers exchanged were originally based on some prior value, in most cases gold or silver.
Bitcoin however, is literally “computer money.” It is a form of currency that with no physical existence, but is still finite. Bitcoin was created based on a mathematical proof, that anyone can access, and that mathematical proof has limits. In the simplest terms, this means that unlike paper currencies, where countries can simply print more money if they need to, thus devaluing them, Bitcoins have a fixed amount. Even though Bitcoins don’t have a physical form, because of the math involved in creating them, only 21 million of these digital coins can ever exist.
The other unusual aspect of the Bitcoin is that no one owns it. While Bitcoins can be converted over to Yen, Dollars, or Euros, there is no single country, company or bank to which the Bitcoin belongs. Because of this, Bitcoins are more easily transferred, at least electronically, though of course, because of the digital nature, you can’t carry this type of money in your pocket.
Because of the unusual nature of the Bitcoin, more adventurous people looking at the digital advantages of Bitcoins have started to use them in transactions. However, Bitcoins are not widely circulated yet, though they have raised some interesting questions, as well as payment processing possibilities for the future.
For now, the traditional cash economy still plays the dominant role, though of course, credit cards, and other forms of payment have quickly become an everyday part of our lives. While Bitcoins are very new, they present an interesting possibility that may lay the groundwork for other forms of purely digital currency. Because this type of currency is digital, but encrypted, it is impossible to counterfeit, which presents some great security possibilities, but the entirely digital nature of the currency still holds it back from being widely used. However, as an early example of what digital currency could be, it’s an interesting demonstration of the future of money.
Posted in Payment Processing on Nov 29, 2016