NTEN: Change | June 2014

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itcoin is a digital peer-to-peer currency that has been gaining global momentum over the last couple of years. According to PricewaterhouseCoopers, Bitcoin had 3.4 million online mentions in 2013 and many companies, as well as nonprofits, have begun experimenting with this emerging digital currency. What is Bitcoin? Introduced in 2009, Bitcoin is an algorithm, or set of rules, written down as a computer program and it is designed to create and manage a supply of digital currency units, as well as processing payments between users. Think of it as a special kind of 18


currency in which you can whisper where you would like it to go, touch it to a computer screen, and it will be transferred to any person or organization connected to the network. Bitcoin is created, or “mined,” by computers that solve complex mathematical problems with highspeed computers. The reward for mining is Bitcoin, which is provided to the person who is running that computer. There are approximately 12 million Bitcoins currently in circulation and there are 21 million Bitcoins that are built into the algorithm—reaching that limit will take decades.

Bitcoin addresses a fundamental problem that has existed since the beginning of the Internet — when dealing with digital currency, how do you avoid counterfeiting, or doublespending, by users? If a central authority is issuing the currency, what is to keep them from creating more? This problem is solved by the Blockchain. The Blockchain is central to Bitcoin’s existence and it is a universal public ledger. Every Bitcoin transaction is logged on the public Blockchain, which is then verified by the computers that are connected to the network and enables users to agree on who owns how many Bitcoins. In essence, Bitcoin represents a way in which individuals and organizations can transact with one another without the need or approval of a central authority. Bitcoin has the potential to democratize finance the same way the Internet democratized information. We are still witnessing the early stages of Bitcoin and its evolution, but nonprofits should be paying attention. Why Should Nonprofits Pay Attention? Bitcoin is a revolutionary new way of transacting value online. While the Internet has heralded the decentralization and democratization of information and knowledge, the finance sector has not been presented with a serious challenge to its fundamental underpinnings until the emergence of Bitcoin. Up until now, small transactions on the Internet have not been practical due to processing fees of various payment providers. In practical terms, transaction fees for traditional online payment processors typically range anywhere from 2% to 6%. In comparison, fees of Bitcoin exchanges tend to be closer to 1% or less when transacting directly between individuals.

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