Bitcoin for E-Commerce: Principles and Applications

Introduction

Few people took note on January 8th, 2009, when an email (see Figure 1) was sent to the cryptography mailing list to announce the first release of a new electronic cash system, called Bitcoin (Nakamoto, 2008). About four and half years later, when Ross William Ulbricht was arrested in October, 2013 for allegedly running the online black market Silk Road where Bitcoin was adopted as the payment system (Grossman & Newton-Small, 2013), Bitcoin was already well known, if not widely used. Today Bitcoin is traded on exchange markets for several hundred dollars per coin unit, and merchants such as Amazon, eBay, and Target now accept bitcoin payments.

Figure 1.

The 2009 email announcing Bitcoin v0.1

So, what is Bitcoin? How does it work? Why do people accept it? What is its future? How will it affect electronic commerce? Despite significant media coverage on Bitcoin (Goodman, 2014; Andreessen, 2014; Grossman & Newton-Small, 2013) and quick adoption of Bitcoin by an increasing number of merchants, the complex technical details of Bitcoin remain elusive to both the general public and many professionals. This chapter aims to answer all these questions in a straightforward manner.