The virtual currency bitcoin is growing, with between 200,000 and 300,000 transactions recorded every day.

But its use is by no means universal. So what is bitcoin, and should retailers accept it?

What is bitcoin?

Bitcoin is a peer-to-peer digital currency known as cryptocurrency, that is based on distributed ledger technology. This is an asset database that can be shared across a network of many sites, companies or countries.

Produced when members of the bitcoin network solve complex algorithms, new bitcoins are validated using a public-private pair of cryptographic keys – these keys help both encrypt and decrypt data.

Bitcoin transactions are confirmed by being included within a publicly shared blockchain (an encrypted collection of ‘blocks’ or data records).

Legal status

As a virtual currency, bitcoin is not legal tender, but it is accepted by users as a digital medium of exchange. Regulators have paid little attention to the use of virtual currencies in day-to-day transactions; merchants therefore accept bitcoin at their own risk.


Customers store bitcoins in a virtual wallet. A retailer uses a bitcoin payment application to display a QR code with the product price.

The customer scans the code on their smartphone and the bitcoin passes. Notification of payment is almost instant, and the payment is treated as confirmed within 10 minutes.

Pros and cons

Among the advantages of bitcoin are:

  • Low transaction fees – a retailer pays no fee to receive bitcoin and the charges for payment applications are lower than those of credit card providers.
  • Speed – payments settle at the moment of transaction and are typically confirmed within 10 minutes, so are very quick.
  • Convenience – there is no need for compliance with payment card industry standards, and no chargebacks. 
  • No chargebacks – Bitcoin payments are irreversible, so there is no risk of a chargeback in the event of a dispute with the customer.

Disadvantages include:

  • Volatility – bitcoin is subject to large fluctuations in value. It is advisable to frequently convert bitcoins received into local currency.
  • Risk of loss – while bitcoin is itself secure, bitcoin applications are subject to attacks by hackers, and bitcoin wallets can be accidentally lost, deleted or stolen.
  • Anonymity – the fact that bitcoin is anonymous may make it harder for merchants to collect and monetise the spend data of their customers.

Bitcoin is most readily used in low-value, high-volume transactions.

While its speed and low costs make it attractive, its volatility and the ease with which it might be lost are significant risks, and best mitigated by using reputable wallet applications, keeping secure records of passwords, and arranging frequent sweep-ups into local currency.

Louise Workman Ashfords

Louise Workman is a partner and head of retail at Ashfords LLP