Bitcoin and Cryptocurrency Technologies

crypto and we won’t cover it here, but it’s another example showing how cryptography can be used to
ensure privacy.
Solvency is one aspect of regulation that Bitcoin exchanges can prove voluntarily, but other aspects of
regulation are harder to guarantee, as we'll see in Chapter 7.
4.5 Payment Services
So far we've talked about how you can store and manage your bitcoins. Now let’s consider how a
merchant — whether an online merchant or a local retail merchant — can accept payments in
bitcoins in a practical way. Merchants generally support Bitcoin payments because their customers
want to be able to pay with bitcoins. The merchant may not want to hold on to bitcoins, but simply
receive dollars or whatever is the local fiat currency at the end of the day. They want an easy way to
do this without worrying too much about technology, changing their website or building some type of
point of sale technology.
The merchant also wants low risk. There are various possible risks: using new technology may cause
their website to go down, costing them money. There’s the security risk of handling bitcoins —
someone might break into their hot wallet or some employee will make off with their bitcoins. Finally
there’s the exchange rate risk: the value of bitcoins in dollars might fluctuate from time to time. The
merchant who might want to sell a pizza for twelve dollars wants to know that they're going to get
twelve dollars or something close to it, and that the value of the bitcoins that they receive in
exchange for that pizza won't drop drastically before they can exchange those bitcoins for dollars.
Payment services exist to allow both the customer and the merchant to get what they want, bridging
the gap between these different desires.
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