You may have heard of the term ‘bitcoin’ but weren’t really sure what it means. Bitcoin is a type of cryptocurrency and was the first to be developed in 2009. There are now many others such as Litecoin, Nxt, Mastercoin, Ripple and more.
Cryptocurrencies are essentially a type of currency where instead of notes and coins, you use lines of code. It’s different to other types of digital payment systems such as Apple Pay, Google Wallet or Paypal, as there’s no centralised bank or government body overseeing transactions. Another point of difference is that, unlike other currencies which can be increased in volume via central banks’ quantitative easing, there’s a finite amount of cryptocurrencies available. Also, every single transaction is encrypted, making it very secure.
So how do you get your hands on bitcoins or other cryptocurrencies?
- You can go online and buy bitcoin, bearing in mind the value can fluctuate quite a bit.
- You can ‘mine’ them, which involves using computers with incredible processing capabilities (and which tend to use a lot of electricity) to find the lines of code.
- You can earn them like any other currency and exchange them for goods and/or services. While there aren’t many places currently accepting bitcoin in Australia, the number of businesses is growing, with Melbourne considered the ‘bitcoin capital’.
What are the advantages of using cryptocurrency?
While there aren’t many Australian businesses currently using bitcoin, those who are can see a number of advantages. Because there aren’t any middlemen such as banks involved, processing transactions is cheaper so you can save on credit card transaction fees. They are also a lot more secure as you are not relying on the security of a third party to process the transaction.
What are the drawbacks?
Because it is relatively new, cryptocurrencies are treated differently in different countries and how they are considered under various tax laws is still a bit of a grey area. Also, while some businesses have embraced them, the vast majority of Australian organisations don’t have any way of processing bitcoins so you would still have to convert them to Australian dollars to perform a transaction.
Use of cryptocurrencies such as bitcoin is relatively new but their advantages make them an attractive alternative to conventional currencies. It is worthwhile looking more deeply into how they can be used in your business. It will certainly be interesting to see what part they will play in the future.