If you haven’t heard of Bitcoin, there’s a good chance you don’t spend much time on the internet, reading the news or may reside underneath a rock. It’s safe to say Bitcoin and currencies like it have taken the world by storm and made quite the impact in a short amount of time. But how does Bitcoin payment work?
Bitcoin is the most well known, valuable cryptocurrency, a form of digital money. Unlike coins or notes that you keep in your wallet, you can’t physically touch a Bitcoin PAyment. A Bitcoin is a digital currency only, existing in a digital environment monitored and maintained by an enormous digital network.
If you’re new to digital currencies, Bitcoin is the best place to start. In this post, you’ll learn everything you need to know about Bitcoin to fully understand what it is and how it works.
What is Bitcoin?
Bitcoin is what is known as a ‘digital currency‘. Unlike pounds sterling, dollars, euros and other government-backed or ‘fiat’ currencies — Bitcoin isn’t backed by International governments or central banks. Instead, the value of Bitcoin derives from the high level of security of the technology used combined with Bitcoin being adopted by a worldwide community of users. It’s also capped at 21 million, allowing for more efficient comparisons of cryptocurrency values. In a way, you could compare Bitcoin valuation to stocks, as its value is determined by supply and demand.
Cryptocurrencies such as Bitcoin use blockchain technology to provide users with anonymity and security, which simply isn’t possible with non-digital currencies. This isn’t to say that Bitcoin is a risk-free financial practice. However, there’s an argument for Bitcoin and similar currencies becoming the future of money, especially when considering the gradual steps we continue to make towards a cashless society.
What is Bitcoin Blockchain?
‘Blockchain’ is a term used to describe the system in which cryptocurrency transactions are recorded and maintained across a vast peer-to-peer network. More specifically, the Bitcoin blockchain acts as a digital ledger with the primary goal of tracking the creation of Bitcoins as well as an up-to-date record of their movements. Unlike bank accounts, digital ledgers are decentralised and publicly available, meaning anyone with the internet is able to view transactions within a network’s history. However, while the blockchain history is transparent, the user identities are not — therefore ensuring utmost security and privacy.
‘Blockchain’ is a term used to describe the system in which cryptocurrency transactions are recorded and maintained across a vast peer-to-peer network. More specifically, the Bitcoin blockchain acts as a digital ledger with the primary goal of tracking the creation of Bitcoins as well as an up-to-date record of their movements. Unlike bank accounts, digital ledgers are decentralised and publicly available, meaning anyone with the internet is able to view transactions within a network’s history. However, while the blockchain history is transparent, user identities are not, ensuring utmost security and privacy.
So, how does bitcoin blockchain work? Well, it works like this:
- Bitcoin transactions consist of users buying, sending, or exchanging bitcoins. These transactions are broadcasted to a system designed to validate ‘blocks’ of transactions.
- The validation process is referred to as ‘mining’ and is completed by cryptocurrency miners utilising vast computing resources. For every block they validate, they earn Bitcoin.
- Miners add blocks to the Bitcoin blockchain, and transactions are triple-verified by the sender, the receiver, and the entire Bitcoin network.
- New blocks and their transaction information are instantly copied worldwide to Bitcoin miners’ local versions of the Bitcoin blockchain, creating consistency regarding the current state of the Bitcoin blockchain.
How Does Bitcoin Payment Work?
On a fundamental level, Bitcoin works the same as any other currency. Consumers provide it as payment in return for goods or services. However, there are two key differences when compared to traditional payment processing. The first is that customers pay via their digital wallet, not using a card or other methods such as PayPal. Secondly, and as you can likely guess, customers, pay in cryptocurrency (Bitcoin, in this case) rather than conventional currencies such as GBP, USD, etc.
If a customer wants to pay using Bitcoin or a merchant wants to accept Bitcoin, they need to have a digital wallet. This can be achieved using a range of apps or desktop software, and they are very much like bank accounts. But, as we mentioned above, they are decentralised. Digital wallets for cryptocurrency typically come in two different forms:
Single-currency: Single currency wallets are linked to a specific type of currency (such as Bitcoin) and are best suited to users who either work with or want to focus on one particular currency.
Multi-currency: Multi-currency digital wallets tend to be the preferred choice for business owners, as it allows you to accept a wide range of cryptocurrencies. This provides a more comprehensive selection of payment options and will enable you to future proof your business if/when new cryptocurrencies come into play.
At the merchant’s end, they also receive the payment in the form of cryptocurrency — meaning it isn’t automatically converted into their chosen fiat currency. However, they can easily do so at any time they want. So Bitcoin can easily be stored in a digital wallet and used as a saving space or converted into traditional currency with the help of a payment service provider.
Do you want to learn more about Bitcoin or any other topic relating to cryptocurrency? Check out our blog for a wide range of content about payment services or get in touch to discuss your requirements with our helpful team of experts!