Bitcoin: how does it work and what does it mean for business?

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Unless you’ve been living under a rock, you might have heard the term ‘bitcoin’ bandied about in the past few months. But even though bitcoin seems to be popping up everywhere, there are still so many questions about what it is, how we use it, and what it means for businesses.

 

Is there legislation in place regarding bitcoin? Do businesses need to treat bitcoin and the Blockchain differently from existing currencies? And what’s in store for the future?

 

We’ve done our research and have answered some questions about the UK’s most elusive currency. So buckle up, here comes the bitcoin breakdown:

 

Where on earth has bitcoin come from?

 

Bitcoin was invented by an anonymous person or group of people under the pseudonym Satoshi Nakamoto, and to this day nobody knows the real identity of the creator(s).

 

What we do know is that bitcoin network came into existence with the release of the first open source bitcoin client (in real speak - the way you access bitcoin) and the issuing of the first bitcoins.

 

Unlike traditional currencies, bitcoin has no central bank, nation state or regulatory authority backing it up.

 

What are people using it for?

 

Bitcoin is currently being used for all sorts of things, from buying airline tickets or pizza, to the buying and selling of houses! But something to bear in mind is that as a digital currency, you can only pay for things with bitcoin using a digital wallet (similar to Apple Pay).

 

What’s good about Bitcoin and other cryptocurrencies?

 

One of the most popular features of using bitcoin is that it’s fast. Transactions are completed nearly instantly and are confirmed in a couple of minutes, so no more worrying about bank holidays or cross-country payments. Because bitcoin is digital, it is completely indifferent to your location or timezone.

 

The other huge benefit to using bitcoin as currency is that it’s highly secure. Everybody’s funds are locked in a strong cryptography system and each user has a private key that can be used to access their bitcoins. Only one person has access to that key so it’s near impossible to break the scheme.

 

 

Does it fall under the same regulations as other currencies?

 

The value, usage and understanding of this currency (or cryptocurrency as it’s called) has fluctuated over the past few years. Whilst the number of businesses who accept it as legal tender is growing, the UK government has remained tight lipped and offered little in the way of advice to many regulated businesses as they try and navigate this complicated area.

 

So how do businesses know what they should or shouldn’t be doing?

 

It’s all new territory for the UK. The country has a well-established tradition of self-regulation and without formal guidance, businesses are acting on their own interpretation of what the rules ought to be. As a result, UK businesses are chasing regulators for rule clarification (as opposed to the other way around!), which is very unusual indeed.

 

What is HMRC saying?

 

Only in June of this year did HMRC release its latest Anti-Money Laundering 4th directive and there is no mention of bitcoin, so it’s still unclear what the best practices should be.

 

How is bitcoin affecting the housing market?

 

Houses are actively being bought and sold by using bitcoin and given the anonymous nature of Blockchain (the underlying ledger platform that bitcoin is based on), it's more difficult to conduct the necessary identity checks on the people involved.  

 

Can Credas help with this at all?

 

With the ambiguity of bitcoin, and its use in the process of buying and selling houses, we believe more stringent verification processes could be of benefit at the point of sale.

 

Using the simple but powerful Credas technology means you can be satisfied that a person is who they say they are, and that the ID document they present is a valid one. This ensures that the human element is able to be verified, even if the currency that is exchanged is a little more vague!

 

What’s next for bitcoin?

 

Cryptocurrencies are still in their infancy, and with new versions being launched, it looks like it will be a long time before they cross the chasm from being an exciting product to a currency for the mass market.

 

Bitcoin Gold is the latest variant to be announced and that’s without considering competing currencies such as ethereum, ripple and monero… but given that none of these currencies are widely adopted or understood, our advice is that businesses should tread carefully within the regulated space and keep an eye on the horizon.

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