The use of cryptocurrencies to make transactions online has grown in popularity over the past few years, but only one has begun to dominate the market – bitcoin. According to Bitcoin.com, there are currently 16.67 million Bitcoins in supply with 12,000 online transactions made per hour. Several businesses in major Texas cities like San Antonio and Austin even accept it. As popular as this new form of currency has become, many are left wondering what it is, how it even works and about the risks involved.
Unlike dollars, pesos or yen, bitcoins are not backed by a government or distributed by a central bank. Instead, bitcoins are simply lines of programming code created on a peer-to-peer network through a process called “mining.” People involved in this process use special computer resources to compete with other “miners” to solve complex mathematical puzzles. Solving the puzzle awards the winner a “block” of bitcoins. Transactions can then be made online or through an app on your phone.
Since there is no regulatory agency, this currency comes with its own unique risks. The value of Bitcoin can fall just as quickly as it can rise depending on demand. For example, the value of Bitcoin hit a record high of nearly $20,000 per coin back in December. It has since dropped to less than half that value and, by the time you read this article, that number will probably be drastically different. Payments made with virtual currencies are not only irreversible, they also do not have the same legal protections as most traditional payment methods, such as the ones you have when using a credit card. The Federal Trade Commission has found that some online merchants that accept Bitcoin as payment do not deliver the product on time or they provide refunds with store credit rather than currency. That is why it is important to always know the seller and their policies before making a purchase.
Better Business Bureau advises that if you choose to use or invest in Bitcoin, use extreme caution. Be sure to do your homework first, to understand the rules and risks of Bitcoin transactions.
- Check out the seller’s reputation. Make sure you know where the seller is located and how to contact someone if there are problems.
- If you pay with bitcoins, the only way to get a refund is through the seller or payment processor, so it’s important to choose companies you trust.
- How much will your refund be? The value of a bitcoin changes constantly so the seller should tell you before you buy what exchange rate will be used for refunds.