Misunderstood and mired in controversy, Bitcoin could yet prove to be a game changer in the business world and has the potential to affect all our lives, writes Jon Card
“Can you please move forward to let the people at the back in,” called out the compere to the crowd of some 300 people crammed into a building in Shoreditch, east London. It was standing room only in this darkened place, which had a bar at the back and a stage with sound system at the front. You might have expected there to be a hot new band or comedian on tour playing that night. But in fact the audience were there to listen to Brian Armstrong, co-founder of Coinbase, the world’s biggest Bitcoin wallet, and to find out more about this peer-to-peer cryptocurrency.
Armstrong’s business enables retailers to accept payments in Bitcoin. It then immediately converts them into a fiat currency (euro, dollar), thereby avoiding Bitcoin’s notorious volatility. It also provides retailers with a wallet to keep their Bitcoin in and to use to make payments. Coinbase hasn’t even fully launched in the UK yet as it’s still wrangling with regulators and banks. But Armstrong was in upbeat mood following Coinbase’s expansion into 18 European countries and a successful year persuading US retailers to adopt his platform.
The past year has also seen a big uptake in Bitcoin usage and, although there’s still a lot of ignorance, mystery and even some hostility to the concept, it’s making big strides toward respectability. Armstrong says ultimately it is consumers who are forcing business to take Bitcoin seriously. “The consumer really had to get there first before we could get these retailers signed up. It certainly doesn’t hurt when we tell merchants that we have 1.7m customers that might want to come shopping at their store,” he said. “If we can build a customer base of a million people in Europe then we can go get those merchants. I just gave away the master plan there.”
Armstrong told the audience that during 2014 Bitcoin was increasingly being used for normal, everyday transactions. “The transactions happening on the Blockchain are definitely real commerce, people aren’t just buying Bitcoin as a speculative asset anymore,” he said. However, there are big issues still to resolve with Bitcoin before it becomes accepted by the mainstream. The horde gathered at this tech meet-up, organised by the Bitcoin networking group CoinScrum, included many developers and young entrepreneurs, who tend to be ahead of the pack for new ideas. But the fact remains that many people don’t really know what Bitcoin even is.
What is Bitcoin?
Bitcoin is a peer-to-peer currency generated by software. It means two people anywhere in the world can make a transaction within minutes, without having to go through a bank or incur charges. The speed of these transactions is very fast, usually taking less than 10 minutes, and can potentially involve huge amounts. At the time of writing, there were over 13 million Bitcoins in circulation and individual coins were worth about £240 each. Each of these coins can be divided into units of up to eight decimal places, with the smallest unit known as a Satoshi (0.00000001 of one Bitcoin). Every transaction is recorded in a giant public ledger called the Blockchain, which is perhaps the most exciting aspect of Bitcoin. This ledger is publicly accessible and you can watch it in real time if you so wish to online (just search for ‘Blockchain’). The Blockchain is virtually unhackable. In fact, according to Professor Campbell Harvey of Duke University in North Carolina, you’d need about $300m worth of processing power to make any alterations on this massively encrypted chain. “It’s extremely unlikely that anyone would have enough computing power to be able to hack it,” he says. Harvey sees enormous potential for the Blockchain. He believes it could provide a unique way of verifying ownership of all sorts of assets, as it has the potential to have other documents attached to it. Harvey prophesies that the Blockchain could even come to represent the “common knowledge” of society. “Imagine getting into your car and your ownership is verified via the Blockchain and the car starts only for you,” suggests Harvey. “It’s feasible to attach many types of financial contracts to the Blockchain. It may represent the common knowledge of our civilisation in the future.”
Harvey is by no means the only one interested in the Blockchain, with venture capitalists also taking a long-term view on how Bitcoin-related transactions could spin off into a range of disruptive industries. Certainly, developers across the world are taking to the Bitcoin world with gusto. Armstrong points to the bulging Github depositories as evidence that Blockchain-related projects are gaining momentum. He says the company has taken this to heart, itself heading down the open source route. “We’ve launched Toshi, our open source enterprise Bitcoin node, which makes it really easy for developers to build apps on top of the Blockchain. This is what we had to build internally to get Coinbase to work and we just gave it away for free. As a result it’s now an open source which a lot of people are using,” he says.
But away from the world of open source development, Bitcoin has the potential to make a real impact on traditional retail and also to massively disrupt the financial sector. Currently, every time you visit a cafe or clothes shop and use your card, the banks takes a cut of the retailer’s profits. This is often four percent and so, for small stores, the price of providing a cash-free way of paying eats into profit margins. However, this makes Bitcoin a very attractive proposition for retailers as, potentially, transactions can be made for free, or in practice for very little.
Adam Twidell is the founder of PrivateFly, an online private jet brokerage, which has been accepting Bitcoin payments for the past year. “All customers are asked to fill in a feedback form and one said he wanted more flexible payment options like Bitcoin. I’d only really just heard about Bitcoin then and it was just from press reports with how it was linked to criminality and drugs. At first I didn’t think it would work with our brand at all. But then I looked at some of the other brands using it, like Virgin and Expedia, and thought: ‘maybe this isn’t such a crazy idea’.”
Twidell set up an account with BitPay, which now offers a freemium service to retailers, and although only a minority of his customers pay this way he says it’s a useful part of the payment mix. “I don’t see Bitcoin overtaking traditional banking methods in the next 10 years, but it’s part of the payment mix,” he says. “The big advantage is that there are no charge backs with Bitcoin, whereas with credit cards there can be, because of fraud or if a customer is unhappy.
Twidell says that, while there are practical advantages for him in accepting Bitcoin, he thinks some customers love to use it because of their rebellious nature. “The customers who use them are a bit anti-establishment, anti-banking and like to use a currency which bypasses the banks,” he says. “The other major advantage is that Bitcoin customers are incredibly vocal and tweet about us accepting Bitcoin, which is very unusual for private jet customers. But we don’t hold onto any Bitcoins because there is no one in my supply chain who I can <a></a>pay them with.”
Image courtesy of Victor Habbick at FreeDigitalPhotos.net