Bitcoin payments
Bitcoin can be accepted as payment using various techniques. Bitcoin is not recognized as a legal currency in many jurisdictions, but it is increasingly being accepted as a payment method by many online merchants and e-commerce websites. There are a number of ways in which buyers can pay a business that accepts Bitcoin. For example, on an online shop, Bitcoin merchant solutions can be used, whereas in traditional, physical shops, Point of Sale (POS) terminals and other specialized hardware can be used. Customers can simply scan the QR barcode with the seller's payment URI in it and pay using their mobile devices. Bitcoin URIs allow users to make payments by simply clicking on links or scanning QR codes. A Uniform Resource Identifier (URI) is basically a string that represents the transaction information. It is defined in BIP21. The QR code can be displayed near the point of the sale terminal. Nearly all Bitcoin wallets support this feature.
Businesses can use the following image to advertise that they can accept Bitcoin as payment from customers:
Figure 7.7: "Bitcoin accepted here" logo
Various payment solutions, such as XBT terminal and the 34 Bytes Bitcoin POS terminal, are available commercially.
Generally, these solutions work by following these steps:
- The salesperson enters the amount of money to be charged in fiat currency; for example, US dollars.
- Once the value is entered in the system, the terminal prints a receipt with a QR code on it and other relevant information, such as the amount to be paid.
- The customer can then scan this QR code using their mobile Bitcoin wallet to send the payment to the Bitcoin address of the seller embedded within the QR code.
- Once the payment is received at the designated Bitcoin address, a receipt is printed out as physical evidence of the sale.
A Bitcoin POS device from 34 Bytes is shown in the following image:
Figure 7.8: 34 Bytes POS solution
Bitcoin payment processors are offered by many online service providers. It allows integration with e-commerce websites to facilitate Bitcoin payments. These payment processors can be used to accept Bitcoin as payment. Some service providers also allow secure storage of Bitcoin, for example, BitPay (https://bitpay.com). Another example is the Bitcoin merchant solutions available at https://www.bitcoin.com/merchant-solutions.
Various BIPs have been proposed and finalized in order to introduce and standardize Bitcoin payments. Most notably, BIP70 (secure payment protocol) describes the protocol for secure communication between a merchant and customers. This protocol uses X.509 certificates for authentication and runs over HTTP and HTTPS. There are three messages in this protocol: PaymentRequest, Payment, and PaymentACK. The key features of this proposal are defense against man-in-the-middle attacks and secure proof of payment. Man-in-the-middle attacks can result in a scenario where the attacker is sitting between the merchant and the buyer, and it would seem to the buyer that they are talking to the merchant, but in fact, the man in the middle is interacting with the buyer instead of the merchant. This can result in manipulation of the merchant's Bitcoin address to defraud the buyer.
Several other BIPs, such as BIP71 (Payment Protocol MIME types) and BIP72 (URI extensions for Payment Protocol), have also been implemented to standardize payment scheme to support BIP70 (Payment Protocol).
Another innovative development is the Lightning Network. It is a solution for scalable off-chain instant payments. It was introduced in early 2016 and allows off-blockchain payments. This network makes use of payments channels that run off the blockchain, which allows greater speed and scalability of Bitcoin.
This paper is available at https://lightning.network/ and those of you who are interested are encouraged to read the paper in order to understand the theory and rationale behind this invention.
So far, we've covered a lot of concepts related to Bitcoin payments and pertinent concepts and techniques. We have completed our discussion regarding Bitcoin payments here and will now move on to the different but important topic of innovation. Bitcoin, and blockchain technology in general, are under continuous evolution, and we'll discuss some of the most relevant ideas next.