You must have heard of Bitcoin, the digital currency without any central control. Bitcoin was already a big and exciting topic 1-2 years ago in the tech/nerd community and recently went mainstream in the media: from CNN to even German conservative Handelsblatt. Some see bitcoin as a hype, some purely as an investment option (like Gold, Silver, etc.) and some have high hopes in it to become the first global and friction-less payment system. For the sake of global ecommerce, I am hoping that it will not just be a good investment, but also a payment system – one that finally really works well for websites, mobile and at the POS.

I’ll outline a few features of bitcoin over the next paragraph until I’ll take a more technical twist to this and will show you how you can run your own transation-free (almost) payment system using Bitcoin.

First of all, Bitcoin exists since 2008 and was born out of a paper written by Satoshi Nakamoto. This is not a real person, it might be a single or a group of developers. Nobody knows them, which many consider a good thing because there is nobody to hold accountable for. In the recent years the Bitcoin Foundation took over the source code of the Bitcoin software (via GitHub) and continuously improves it.

So what are the characteristics of bitcoin:

Instant P2P transactions: ther is no middle man. No bank. People can send money from one account to any other bitcoin adddress. These addresses typically are presented as QR code or encoded onto an NFC tag and include a checksum – so it is hard to get it wrong.

Little transaction feeds: Credit card companies charge 2%, with bitcoin you pay a fraction. The fraction paid is a reward to all P2P nodes confirming the transaction. The more nodes confirmed the transaction the more unlikely it is the transaction does not go through. Typically 1-2 nodes that confirmed a transaction are enough for smaller payments. Larger payments can wait a longer time or increase the transaction fee to speek up the process.

Bitcoin is the first global currency. The same everywhere. Travellers love it.

Low risk of inflation: there is a total amount of 21 million bitcoins – ever. This surely has caused speculators to invest and is both a good and bad thing.

Bitcoin can be used anonymously: I think this is by far overrated as most people today have bought bitcoin through an exchange and have gone through ID processes. There are of course ways to send the money on to anomynous addresses, but it should be pretty tough for most people to figure a perfect system out.

It i super easy to get started: It depends how you want to use bitcoin, but in the most simple case you open an online account to accept and buy bitcoins or you download a free app (e.g. on Android) and are instantly ready to receive bitcoin. To get some, you’ll need a marketplace like bitcoin.de or to know someone who has some.

But speaking of ecommerce, why is this so exciting for shop owners – both online and offline:

Low transaction fees: even if you use a payment provider, e.g. BitPay, the transaction fees are radically lower than the 2% of a credit card company.

No reverse transactions: a transaction cannot be reversed. This one is big – retailers can still refund a returned item, but it is again a forward/new transaction. There is no way to cause troubles for retailers by calling the credit card companies and denying a 120 days old transactionPayment providers like BitPay take off the risk of converting Bitcoin into a local currency and depositing the amount into your bank account. You pay a fee for that. If you are more radical, you can explore to setup your own bitcoin server, using the openly available software.

I recently just did that:

Once you have the software running – use the GitHub link to get and compile it – you start the bitcoind process. It will quietly download the blockchain for a day or so and then you can use the system.

To get your default account address that was generated, type this:

bitcoind getaccountaddress "" > 1JDa7ht2DgL1ai42hGTWRTkR3iM7XRyBeY

You should setup a new address (you can generate as many as you want) for each order. Very simple:

bitcoind getnewaddress "" 1DFCV6SkfehpYUstsjneU8yr41Epe6j9iq

Now transfer some money from another bitcoin wallet. Wait until the blockchain is updated:

bitcoind getreceivedbyaddress 1DFCV6SkfehpYUstsjneU8yr41Epe6j9iq > 0.00010000

You can also check how many nodes have confirmed the transaction by adding another parameter stating the amount of nodes known to have confirmed the transaction. In the end, you can very easily transfer the balance to another wallet and from there on cash it out or convert to local currency.

Besides the command-line interface, bitcoind has a JSON-RPC style interface that is simple to use. I explored this using a small Groovy-based utility already and will post about it if you like (let me know).

If you don’t want to run your own bitcoin server you have the choice to use a bitcoin payment provider. Another smart choice might be to use something in between – e.g. blockchain.info offers nice callback options for your integration. Once funds are received, a callback informs your server about the received payment. You can then mark the order in question paid and continue the order fulfilment process.

We’ll have more news and discussion around bitcoin soon – for now I have to catch my flight from Beijing back to Germany. Just coincidentally, China is having most Bitcoin transactions globally and the largest marketplace. Baidu.com – the Chinese search giant is now accepting Bitcoin, too!