Bitcoin Prices Skyrocket: Is It Time For You to Get Digital?

Bitcoin was worth $10 per unit last summer. Since then, there's been extreme buzz around the digital currency, with many remaining uncertain it will ever gain legitimacy. This November, Bitcoin was trading at more than US$1,000 each.

The currency is generated by computers executing a series of algorithms known as "Bitcoin mining." Because of the way the algorithms are set up, the total number of Bitcoins that can ever exist in the world is limited to about 21 million.

The decentralized digital currency removes the need for any type of mediator in a transaction between two people. Anthony Di lorio, executive director of fledgling national association Bitcoin Alliance of Canada, says by eliminating the middleman, Bitcoin can save businesses from significant transaction fees.

Di lorio says freedom from fees is a big part of why Bitcoin will thrive. "Traditionally, [a company such as] PayPal or Visa facilitates transaction—and charges a high amount," says Di lorio. Bitcoin transactions are facilitated by "miners," a network of coders all around the world running open-source software. Instead of taking your your money in return for giving their computer power to the system, they're rewarded with 25 newly-created Bitcoins.

Bricks and mortar shops can even install a Bitcoin ATM, allowing customers to trade in traditional currency for Bitcoin. Di lorio suggests that the lower or non-existant transaction fee allows business owners to offer a discount to customers who pay with Bitcoin.

It's not exactly a mainstream approach. The world's first Bitcoin ATM just opened this October in Vancouver. But Di lorio is convinced that this is "the most important invention since the Internet." It's why he started the Bitcoin Alliance this April. The association is lobbying governments and regulatory bodies to start accepting Bitcoin. This week, it will begin offering free and paid memberships. It's also planning an expo next April in Toronto.

If you're wondering how exactly Bitcoin works and how business might use it in the future, listen to this week's episode of the PROFIT BusinessCast, in which De lorio explains in detail why he thinks this is the currency of the future, how take advantage of the opportunities Bitcoin has created for businesses, and how avoid the risks.