Bitcoins have great properties for consumer transactions. Low fees mean you can pass the savings on and get a price advantage over other merchants. There are no chargebacks in Bitcoin, any confirmed transaction is protected by the full hashing power of the network. So businesses can accept bitcoins from any country in the world, with no risk of fraud or chargebacks.
Point-of-Sale (POS) Transactions
In retail stores, Bitcoins can be used side-by-side with local currency and credit cards. The merchant will need some type of point-of-sale software, which can calculate the exchange rate. They can generate an address to the shopper and monitor their account to see the payment has been received.
Features to look for
Here are some common questions that merchants should ask:
- Can I get a unique Bitcoin address for each transaction?
- How is the exchange rate calculated?
- How fast are payments approved?
- What is my exchange rate risk?
- How do I receive the funds?
- Are there any fees involved?
- How can I see a listing of my sales?
Merchant tools with USD exchange: Bit-Pay and BitSpend.EU
Bitcoin-only merchant tools: WalletBit, BitWillet and BTCinch
A full list of available shopping cart interfaces can be found at the Wiki page.
What are "bitcoin days destroyed"?
The idea of "bitcoin days destroyed" came about because it was realised that total transaction volume per day might be an inappropriate measure of the level of economic activity in Bitcoin. After all, someone could be sending the same money back and forth between their own addresses repeatedly. If you sent the same 50 btc back and forth 20 times, it would look like 1000 btc worth of activity, while in fact it represents almost nothing in terms of real transaction volume.
With "bitcoin days destroyed", the idea is instead to give more weight to coins which haven't been spent in a while. To do this, you multiply the amount of each transaction by the number of days since those coins were last spent. So, 1 bitcoin that hasn't been spent in 100 days (1 bitcoin * 100 days) counts as much as 100 bitcoins that were just spent yesterday (100 bitcoins * 1 day). Because you can think of these "bitcoin days" as building up over time until a transaction actually occurs, the actual measure is called "bitcoin days destroyed". This is believed to give a better indication of how much real economic activity is occurring on the bitcoin network.
So how well does it work? Well, it's still not perfect, because the other day I moved some coins out of a wallet they've been in for several months without spending them or giving them away. And some genuine businesses have very rapid turnover in bitcoins, so they're not being measured well by this method. But it does do a good job of filtering out the "noise" of bitcoins that are just "bouncing around" without really going anywhere. The graph of overall bitcoin days destroyed is believed to show that the genuine level of activity in the Bitcoin economy is continually increasing - it's not just one person experimenting by rapidly sending the same coins back and forth, flooding the network with meaningless chatter. Looks pretty good, hey?
Image from the Bitcoin wiki. The above graph is in percentage of bitcoin days destroyed and a little out of date--for a regularly updated version in bitcoin days destroyed check out http://banana.mine.nu/daysdest.html instead!
What is a good way to concisely explain Bitcoin?
Bitcoin is a new kind of money. It's the first decentralized electronic currency not controlled by a single organization or government. Its an open source project, and it is used by more than 100,000 people. All over the world people are trading hundreds of thousands of dollars worth of bitcoin every day with no middle man and no credit card companies. Its a startup currency which has never happened before.
Bitcoin is the first digital currency that is completely distributed. The network is made up of users like yourself so no bank or payment processor is required between you and whoever you're trading with. This decentralization is the basis for Bitcoin's security and freedom.
Email let us send letters for free, anywhere in the world. Skype lets us make phone and video calls for free, anywhere in the world. Now there's bitcoin. Bitcoin lets you send money to anyone online, anywhere in the world for less then a cent per transaction! Bitcoin is a community run system not controlled by any bank or government. There's no wallstreet banker getting rich by standing between you and the people you want to send and receive money from
Bitcoin is more efficient than all competing currencies. This will drive its adoption in the same way computers were adopted, in that computers made people more efficient in competing in the marketplace. Of course the early adopters will become rich, and I think they deserve it for having played a key role in the development of Bitcoin. A currency has value by it being widely used. Bitcoin is a startup currency with a deflationary bootstrapping economy. Their use spreads by providing the speculator incentive.
Bitcoin is going to be the biggest opportunity for innovation that the world has seen since the industrial revolution. An idea whose time has come.
How can I accept bitcoins on my website?
There are a number of ways one can go about accepting Bitcoin on a web interface. Keep in mind as you review these options that Bitcoin is still a young technology and many of these options aren't what you'd call "friendly" just yet. That said you do have quite a few options depending on your level of expertise and technical requirements:
Use a service like:
BitcoinNotify works a bit differently than the "standard" services above. You provide a list of addresses from your existing wallet to them and they watch the network for transactions to those addresses and they send a notification when payments reach a predetermined # of confirmations. This may be better than the standard implementation for certain kinds of businesses.
Use an existing shopping cart interface
- There are existing plugins for Ubercart, Magento and many other popular e-commerce platforms. If you are looking to modify an existing site that happens to run on one of these platforms, this may be your best bet. If you've yet to start a site and don't want to write code yourself this may still be your best bet since you can choose your platform prior to implementation.
Roll your own using existing libraries
- This is your best bet if you're using a platform that isn't currently supported or if you have difficult integration requirements that cannot be satisfied by existing e-commerce platforms like Magento or Ubercart.
Roll your own using the JSON API directly
- This is only necessary if you are not using one of the half-dozen or so languages that already have pre-written libraries for interfacing with bitcoind. The list of languages may be short, but all of the major industry standards have been covered, so it's unlikely you will have to go this far.
What are some good resources for understanding Bitcoin?
Collecting some of the publicly available information that I found.
Weusecoins.com has an excellent video on the basic premise of bitcoin. Bitcoin is a very complicated platform, and really has two separate entities. There is bitcoin the currency, and bitcoin the currency ledger.
The wiki available at bitcoin.it will give you more in depth information if the weusecoins video is too broad.
Should I leave the Bitcoin client open?
Bitcoin is a peer-to-peer network, which means that the clients not only receive the blocks from other clients, but send out the blocks to other clients. (You may notice the "connections" number in the bottom right of the original client. You can think of this as "peers" in a torrent client). So yes, by having your client open you are technically helping relay the recent blocks out across the network faster than they would get their otherwise, but there is really no reason to keep a client running all the time.
At one point, the client also doubled as a CPU miner, but we are far past the point where that is useful from a security point of view.
How much will transaction fees eventually be?
I read that the market will find the equilibrium how much these transaction fees will be. It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.
True, there is a limit on the blocksize, so if the transaction volume in a block window (approximately 10 minutes) exceeds the block size you can expect a miniature "auction" where transactions fight for space in the block by bidding up the minimum transaction fee needed to get in. However this isn't really a closed-loop adjustment: the maximum blocksize is an arbitrarily chosen number, and there's no reason to believe the maximum blocksize is small enough to ensure that transaction fees are high enough to incent enough miners to mine to keep the system secure. Unlike the difficulty and the USD/BTC exchange rate it does not respond to market activity. It also has the negative side effect of capping the worldwide Bitcoin transaction throughput since other parts of the protocol rely on the assumption that blocks are created - in the long run - no more than once every ten minutes.
Compare this to the current situation with mining rewards: the more valuable a bitcoin is the more incentive there is for somebody to try to overwhelm the "good guys" by gaining 50%+1 hashpower. However, the more valuable a bitcoin is the more miners will mine! It isn't perfect, but the important point is that the demand for security increases the incentive to mine. Note that although the difficulty will go up, that simply ensures that the reward granted every ten minutes is an approximately constant number of BTC - the number of terahashes/sec fighting over that amount of BTC is free to respond to changes in their changing value (as measured in terms of all other goods in the world, including other currencies).
As the mining reward is reduced this "direct coupling" between the network's need for security and the incentive to mine becomes progressively more diluted.