New money

“I’d like to pay with bitcoin, please!”

Alongside cash and traditional electronic payment methods, Internet-based systems are gaining increasing significance. One unusual and exciting example (for both payments and also as a currency) is bitcoin.

text: Jan Rähm  //  photography: istock

An established albeit risky currency. As a digital currency, bitcoin itself is certainly older than it would seem. Although the complex currency system was first launched almost ten years ago, it seems younger, as it took some time for the cryptocurrency to gain a certain prevalence. By December 2013 at the latest, however, bitcoin had become a real talking point. The value of one of these electronic coins had broken the USD 1,000 barrier, bringing sudden wealth to early bitcoin owners. However, the exchange rate then fell sharply again. Following intense volatility, it has stabilised at around $4,000 in 2018.

What is bitcoin?

Essentially, bitcoin is a digital, decentralised currency that is based on cryptographic processes. The individual coins are generated using computers in a process known as “bitcoin mining”. The computers must solve special algorithms. As the number of coins in existence grows, this mining process becomes increasingly complex and requires ever more powerful computers. The maximum number of all bitcoins was mathematically limited to 21 million by the currency’s anonymous inventor.

A key element of the bitcoin system is the “blockchain” – a decentralised database for recording all mined bitcoins and all transactions.

While very few new bitcoins are now mined, services such as transaction authentication are generating additional revenues in the bitcoin system. The energy consumption required is the target of much criticism. Due to the complex computing procedures, the overall system requires high-performance computers with correspondingly high energy requirements.

Bitcoin – not just speculative

Although bitcoin was previously primarily a currency which attracted speculators, it is also a perfectly suitable means of payment. coinmap.org lists all locations around the globe which accept the cryptocurrency as a means of payment. These numbered over 13,000 in autumn 2018. In Brazil alone, it is estimated that several hundred hotels, restaurants and other locations accept bitcoin payments.

Bitcoin in practice

To use bitcoin, both the payer and the payee each require a well-secured bitcoin wallet. This can be obtained via the website bitcoin.org/en/choose-your-wallet. Bitcoin wallets are a type of digital purse for storing the bitcoin tokens. These purses must be well secured to protect them against criminal attacks. This is because anyone who gets their hands on a bitcoin token also owns it. Bitcoin is thus largely anonymous. However, all transactions are stored in the blockchain and can be reconstructed with some effort. They can also be traced back to individual persons under certain circumstances.

If a customer wishes to pay his hotel bill using bitcoin, the hotelier must send him a link containing the recipient data. This can be done at the time of booking, or in the hotel using a mobile device such as a smartphone. In principle, therefore, paying with bitcoin is not much more complicated than payments using other virtual forms of payment. What is more, it functions globally without any restrictions such as borders between countries or financial systems.

Fast, but not immediate

Although transactions are completed in fractions of a second, it can take some time before the bitcoin amount is credited to the recipient. Every bitcoin transaction must be authenticated within the system. This confirmation can take some minutes or even hours. The length of time can be influenced to some degree by the amount of the charges. Accepting higher charges results in preferential treatment. However, the charges for bitcoin payments are generally very low.

The ability to use bitcoin offline is interesting. The bitcoin tokens can also be recorded on paper and then used like other securities. Here, it is important that offline bitcoins be kept in exactly the same way as gold or securities – i.e. preferably in a well-secured safe. In addition, no one should be able to see or photograph the assets, because whoever has the token also possesses the bitcoin.

Special risks

Despite its many positive attributes, bitcoin does harbour risks. One of the major risks is its high volatility. Bitcoin has experienced strong exchange-rate fluctuations in the past. For example, a hotelier could be lucky and find that a payment they have just received is worth twice as much on the following day. However, they may also be unlucky, with the bitcoins received having lost almost all of their value.

Another risk which should not be underestimated is presented by the trading platforms on which bitcoins and other digital currencies can be converted into conventional currencies. Previously, exchanges have fallen victim to numerous cases of digital theft, usually resulting in a total loss for users. The same applies where an exchange goes bankrupt.

Hoteliers who accept bitcoins can offer their customers an ultra-modern means of payment. This is certainly of interest for marketing purposes and for winning new customer groups. However, using bitcoin is not a trivial process and does present risks. In terms of benefits, the system offers the ability to make global electronic payments with low charges.

 

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