Cryptocurrency And The Channel: Brother, Can You Spare A Bitcoin?

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It would be hard to invent a story more interesting than the true events surrounding Bitcoin, the virtual currency introduced in 2009 that's currently sweeping the planet. In the past month or so alone, its once-anonymous founder admitted then denied involvement, his discovery was debunked, and its largest exchange crashed and misplaced bitcoins worth nearly a half-billion dollars. Also, at least one possible suicide was linked to the fledgling currency. The value of one bitcoin has been as much as $1,250, an increase of more than 9,500 percent from its low of $13. It's currently worth about $630.

Bitcoin is an infrastructure for generating and exchanging monetary units between one person or company and another. It involves no banks or credit-card companies, and there are no countries to control, manipulate or potentially destroy the currency. Transactions are private, encrypted and secure -- conducted between one buyer and one seller located anywhere in the world with no oversight whatsoever.

For technology companies, accepting bitcoin as payment for goods and services can bring numerous benefits with minimal potential downside. It's free to accept bitcoin as a merchant and there are no chargebacks or bank fees. There are numerous POS apps, including a free one released by bitcoin wallet provider in mid-March. Bitcoin accounts cannot be frozen, they can be used in every country, and there are no prerequisites or arbitrary spending minimums. What's more, companies accepting bitcoin gain exposure to the bitcoin economy and tend to receive additional business that way.

"It's a good way for startups to get noticed," said Tom Peterson, director of technical marketing at Nvidia, whose graphics processors are a key part of many Bitcoin mining rigs.

"It's easy to criticize Bitcoin as a crazy idea," said Jim Murphy, CEO and founder of BoltMade, a solution provider based in Waterloo, Ontario. "But as you compare it with our currency, maybe it's stronger physics-wise because it doesn't rely on optics." Founded in 2013, BoltMade partners with customer development teams to create purpose-built Web and mobile applications. It doesn't currently accept bitcoin.

"It's easy to like the current system, but it's really an amazing Rube Goldberg contraption in the 21st century, where bitcoin as a technology is impressive and solves a lot of problems." Will cryptocurrency be the payment system of the future? "I'm not sure," said Murphy, "and I'm [also] not sure the tech will be the most important factor."

So What Is Bitcoin?

Bitcoin is one of about 70 cryptocurrencies, known collectively as altcoins. Bitcoin software is open source, which has given rise to dozens of altcoins. Most are variations of either Bitcoin or its lightweight spinoff, Litecoin. Some -- with names such as Coinye and BBQcoin -- were created on a whim and will likely remain relatively worthless. But about a dozen have a market capitalization in excess of $10 million, and two -- Bitcoin and Ripple -- are valued at more than $1 billion. In terms of trade, Bitcoin and Litecoin top the charts with daily dollar volumes of $50 million and $10 million, respectively. Another three altcoins trade in excess of $1 million daily; the remainder have less.

One might acquire bitcoins (lower case "b," for the currency) in three ways. The first and easiest is to simply buy them. Bitcoins can be purchased with cash, wire transfer, debit card and other means through numerous exchanges in many countries. If a credit card is the only option, a group of developers in Waterloo built Tinkercoin, which sells fractional bitcoins in $25 chunks and will set up the digital wallet in which to store them.

The second way is to begin accepting bitcoin as payment for goods and services, as TigerDirect recently did. "Customers were increasingly asking to buy with bitcoin," said Steven Leeds, the company's director of marketing and brand management. TigerDirect doesn't actually accumulate bitcoins, however. Instead, the company sought to minimize complexity and risk by engaging with BitPay, an independent clearinghouse. "It's a transaction tool, like PayPal," Leeds explained. BitPay takes bitcoin from customers and pays TigerDirect in U.S. dollars, with customers never the wiser. "They never even leave our website," he said.

The third way is to earn bitcoins by hosting part of the Bitcoin network. A Bitcoin transaction is processed by an ordinary computer that's equipped with one or more high-powered GPUs and running an app called bitcoin miner. When transferring bitcoin from one party to another, a secure signature is added and verified by a bitcoin miner. Once that's done, a commission is paid to the owner of the mining rig and the transaction is anonymously recorded and stored in the network.

NEXT: Intrinsic Value

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