by Detective Trent Koppel
For many of us, it’s hard to wrap our heads around the idea of paying for something without being able to physically touch or see the currency, or witness the exchange take place right in front of our eyes. Writing a check for some is oftentimes still a foreign concept, but still not as old school as actually passing the paper money or coins to a teller in exchange for your merchandise or service. If you’re someone really stuck in your ways, you may not even like the idea of using a credit card – unless of course you are a teenager in which case that “magic” little plastic card can buy you anything you want! Swipe away and POOF, it’s all mine! Credit cards are how we book our hotel rooms or event spaces in the hospitality industry. It is how we, as the venue, can ensure that we can charge for incidentals.
However, consider the idea of paying for something in Bitcoin? Yep! This is no longer a futuristic idea, it’s here and being used by a lot of businesses. What if we can use Bitcoin as the down payment; then pay the rest in cash at the time of the event? In case you have no idea what a Bitcoin is – and believe me, you’re not alone – let me try to explain.
To start, please note that the Bitcoin concept is a mixture of all present day spending options as well as a little new aged internet ingenuity mixed in. According to Wikipedia, Bitcoin is a digital and global money system currency. It allows people to send or receive money across the Internet; even to someone they don’t know or don’t trust. The money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin’s security.
According to bitcoin.org, Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already uses cryptography. In the case of Bitcoin, cryptography is used to make it impossible for anybody to spend funds from another user’s wallet or to corrupt the block chain. It can also be used to encrypt a wallet, so that it cannot be used without a password.
To begin, a user of the Bitcoin process has to start up a Bitcoin wallet. It’s simply an online wallet or process that contains secure information that only the user of said wallet has access to, and thought of in similar terms as a personal email. However, each address should only be used for a single transaction. This wallet holds the key(s) that allows you to spend your bitcoin money. A Bit is a common unit used to designate a single-unit of bitcoin-1,000,000 bits is equal to a single bitcoin (BTC). This unit is usually more convenient for pricing tips, goods, or services. Your purchase is carefully documented through the use of the block chain.
The block chain is a public record of the Bitcoin transaction in chronological order. The block chain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and therefore, it will prevent someone from double-spending.
I’m sure all this information has done nothing but created more questions for you; however, choosing to stay in the dark on how it all works will only put you behind the eight ball. I encourage everyone to do their homework and look into this new concept. Good news is, it’s doubtful that this will be the only form of payment a person will have, but it will be an alternative method soon enough! A good question would be: What does this mean for me? Or: What does this mean for my business?
I’d like to say that this new concept is secure and theft-proof; one main reason for it’s design. However, unfortunately like anything that holds value, thieves will and have found a way to penetrate this new system and it’s called Mining.
According to bitcoin.org, this Mining is a distributed consensus system that is used to confirm pending transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all the subsequent blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively to the block chain. In this way, no group or individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.
So…moral of the story: Unless you are already aware of how this system works, do some research. Understand the complexities of what is supposed to be a “simple” payment system. This article is just “Buyer Beware” information. This new system can be a fast and effective way to manage your money or your “bits”; however, one should fully understand how it works, especially before you allow anyone to buy a product, a service or complete a trade with you using bitcoins. Like any business transaction you should try to fully understand what you’re getting yourself into. According to research conducted by the University of Champaign Urbana in Illinois, the highest users of Bitcoins in the United States are those 30-35 years of age, although 20-25 year olds were in a close second!
Trent Koppel is a Saint Louis based detective and adjunct professor at Maryville University.