What is Bitcoin?  New Virtual Currency?

Jeremy Allaire(Founder, CEO, and Chairman of Circle Internet Financial) provides an overview of the problems with legacy payment systems, the core innovations of bitcoin and digital currencies, and current and emerging applications of the bitcoin protocol. 

Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.

 3 reasons Wall Street can’t stay away from bitcoin

It’s not surprising Apple is rethinking its policy to allow its apps to accept virtual currency payments. Retailers, including Lord & Taylor, Overstock and TigerDirect, are syncing operations to make it easier for consumers with digital wallets to transact business with the cryptocurrency. The trend has venture capitalists bullish on bitcoin. Already, San Francisco Bay-area bitcoin start-ups have received more than $200 million in VC funding, and the number continues to grow.

Why is this happening? There are three aspects to bitcoin that have investors particularly excited today, and it all begins very simply with speculation of the cryptocurrency’s value.
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Mining pools, such as the heavily funded super-secret 21E6 in San Francisco, are apparently going long on bitcoin by mining as many bitcoins as they can, making the bet that its value will exceed mining costs. 21E6 has raised at least $5 million in venture funding.

Bitcoin payments

The second aspect of bitcoin that is exciting the venture capital community is the idea of consumers using the currency as a means of payment. Well-funded start-ups, such as BitPay, Coinbase and SnapCard, are trying to make bitcoin payments and purchases easy for the masses—both online and at brick-and-mortars.

Digital currency payment start-ups is where a lot of VC dollars are being funneled. BitPay recently closed a large round of funding led by Index Ventures. Coinbase may very well be the top-funded bitcoin start-up, with more than $30 million in venture funding to date.

SnapCard is a product of Boost, a San Mateo, California-based incubator of start-ups run by Adam Draper, son of well-known VC Tim Draper. The bitcoin payment company made waves earlier this year by announcing that consumers using SnapCard could pay taxes with bitcoin.

BitPay has more than 30,000 enabled merchants in its network, with about 10 percent of those actively executing a bitcoin-based purchase in any given month. According to the start-up’s co-founder, Stephen Pair, there is a direct correlation between price rises in bitcoin and the transaction volume among merchants that accept it.

As the digital currency’s price remains relatively volatile, that may not bode well for the short-term prospects of their merchants in increasing the volume of consumer bitcoin transactions. BitPay also believes that, ultimately, business-to-business transactions via the currency will be a much larger market for them versus consumer transactions. Given the large cost of international wires and currency exchange, they may be right.

All this speculation in this new form of currency has led to the problem of how consumers manage their bitcoin holdings. I spoke with one investor, who told me he has dozens of bitcoin private keys (secret protective pass codes) and isn’t certain where they all are. That’s the digital equivalent of saying that you’re not sure where your money is kept. Start-ups like Xapo, Armory and, of course, Coinbase are hoping to address this problem by offering digital wallets to help consumers securely store their virtual currency savings.

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The New Digital Currency is Bitcoin

Bitcoin is a software-based online payment system described by Satoshi Nakamoto[note 1] in 2008[4] and introduced as open-source software in 2009.[5] Payments are recorded in a public ledger using its own unit of account,[6] which is also called bitcoin.[note 2] Payments work peer-to-peer without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency.[10] Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency.

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins. Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services. Users can send and receive bitcoins electronically for an optional transaction fee] using wallet software on a personal computer, mobile device, or a web application.

Bitcoin as a form of payment for products and services has seen growth,] and merchants have an incentive to accept the digital currency because fees are lower than the 2–3% typically imposed by credit card processors.] The European Banking Authority has warned that bitcoin lacks consumer protections.] Unlike credit cards, any fees are paid by the purchaser not the vendor. Bitcoins can be stolen and charge backs are impossible.  As of July 2013 the commercial use of bitcoin was small compared to its use by speculators, which has contributed to price volatility.

Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities.  In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time. The US is considered bitcoin-friendly compared to other governments.  In China, buying bitcoins with yuan is subject to restrictions, and bitcoin exchanges are not allowed to hold bank accounts.

Overview

The most important part of the bitcoin system is a public ledger that records financial transactions in bitcoins. This is accomplished without the intermediation of any single, central authority, as long as mining is decentralized. Instead, multiple intermediaries exist in the form of computer servers running bitcoin software. By connecting over the Internet, these servers form a network that anyone can join. Transactions of the form payer X wants to send Y bitcoins to payee Z are broadcast to this network using readily available software applications. Bitcoin servers can validate these transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other servers.

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The block chain

Bitcoin transactions are permanently recorded in a public distributed ledger called the block chain. Approximately six times per hour, a group of accepted transactions, a block, is added to the block chain, which is quickly published to all network nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, a novel solution for preventing double-spends in a peer-to-peer environment with no central authority. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the block chain is the only place that bitcoins can be said to exist. To independently verify the chain-of-ownership of any and every bitcoin amount, full-featured bitcoin software stores its own copy of the block chain.

Mining bit225

Maintaining the block chain is called mining, and those who do are rewarded with newly created bitcoins and transaction fees. Miners may be located anywhere in the world; they process payments by verifying each transaction as valid and adding it to the block chain.  As of 2014, payment processing is rewarded with 25 newly created bitcoins per block added to the block chain. To claim the reward, a special transaction called a coinbase is included with the processed payments.  All bitcoins in circulation can be traced back to such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved approximately every four years. Eventually, the reward will be removed entirely when an arbitrary limit of 21 million bitcoins is reached. 2140, and transaction processing will then be rewarded by transaction fees solely. Paying a transaction fee is optional, but may speed up confirmation of the transaction. Payers have an incentive to include such fees because doing so means their transaction will likely be added to the block chain sooner; miners can choose which transactions to process and prefer to include those that pay fees.

 

As of 2013 mining had become quite competitive, has been compared to an arms race and ever more specialized technology is utilized. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which outperform general purpose CPUs and use less power as well. Without access to these purpose built machines, a bitcoin miner is unlikely to earn enough to even cover the cost of the electricity used in his or her efforts.

 

 

What are Businesses saying about Bitcoin

 

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Bitcoin key to future of online payments: EBay CEO

 EBay chief John Donahoe says he sees bitcoin and other digital currencies playing an “important role” in PayPal, the e-commerce giant’s Internet payment platform.1280px-CNBC_logo.svg

 

 

We’re going to have to integrate digital currencies in our wallet,” Donahoe said in an interview on CNBC’s
While refusing to say when, the eBay CEO talked broadly about the advantages of bitcoin and why he owns some. “I’m not buying it as an investment. I’m buying it to understand how it can be used.”

“I think there are two sides of it, the investment side and the digital currency side,” he continued in the interview, which aired Thursday. “I’m more interested in the digital currency side about how you and I can exchange value seamlessly using technology.”

PayPal now lets shops accept Bitcoin

Move could end swiping fees paid by shops

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This week, the payment processing company PayPal took its first venture into the world of all-digital money.

Merchants that work with eBay’s PayPal can now easily start accepting payments from customers that use Bitcoin, an independent, government-less currency.

 

PayPal struck a deal with three Bitcoin payment-processing companies: BitPay, Coinbase and GoCoin.

Bitcoin is an Internet-based system of money specifically designed to cut out middlemen, like banks and governments. So, it sounds odd to have Bitcoin processors. But they make it easier for everyday, non-tech-savvy businesses to accept bitcoins — and immediately convert them to cash.

But why take bitcoins — which have fluctuated in price from $1,100 and $400 in the last year — instead of proven government money?

The system offers much lower transaction fees, which cost businesses a huge amount of money. The 2 percent to 3 percent that shops pay in credit card swiping fees can obliterate their profits.

Consider this PayPal’s first — but not last — foray into the world of Bitcoin. The company has made clear that its interest in Bitcoin runs more than skin deep.

In the last year, eBay’s two top executives — CEO John Donahoe and former president David Marcus — have expressed interest in Bitcoin’s technology.

PayPal’s senior director of corporate strategy, Scott Ellison, told CNNMoney the company is most intrigued by the potential to harness the technology that lies at the heart of the Bitcoin system, a public ledger called a blockchain. It’s a totally new way of thinking about transactions. It keeps records that are decentralized and keeps users semi-anonymous while making their transactions public.

“We think Bitcoin has tremendous opportunities going forward,” Ellison said. “If you really want to understand how a technology works, you need to actually be in that technological space yourself.”

Ellison said the move integrating Bitcoin into PayPal is a continuation of the company’s view of itself as “the original payment disruptors.”

 

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Columbia firm gives discount for Bitcoin payments

By Jamie Smith Hopkins, The Baltimore 
A Columbia mobile web software firm said Thursday that it will accept payments in Bitcoin – the digital currency that shot up in value this year – and will give a 5 percent discount to customers who use it. Bitcoin is highly volatile, but most of the movement has been up. It was trading at a value of nearly $900 U.S. dollars apiece late Thursday. Fiddlefly CEO James Ramsey said in a statement that Bitcoin is a way around the “hassle” of paying online in foreign currencies or dealing with credit cards.

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