Bitcoin is an innovative digital currency in which transactions can be performed without the need of a central bank. Stemming from humble beginnings in 2008, bitcoin has come a long way. 2014 has seen the currency being accepted by worldwide universities and organisations, the current value of bitcoin has soared to $623, and it has been termed ‘the future of online payment’.
Version 0.1 was released on January 9th 2009 followed by the first bitcoin transaction shortly after on January 12th 2009. Fast forward a few years to 2013 where one bitcoin was equivalent to $266 (up $253 from 2012), the first bitcoin ATM debuted in San Diego CA, and it was ruled as an official currency by a Texan judge.
How does a bitcoin work and where is it accepted as a currency?
Bitcoins can be purchased from a bitcoin exchange, a bitcoin ATM or in exchange for goods or services, which are then stored in a digital wallet accessible by the user only. Bitcoins are now accepted by an increasing number of organisations ranging from British pub and restaurant chains, subway stations, a whole shopping district in Berlin to large online businesses like WordPress and Reddit. On the 9th of July at a live event, The Drum not only revealed that they will accept bitcoin as payment for their magazine, but they also unveiled a bitcoin ATM, providing attendees with the chance to exchange cash for bitcoins.
Benefits of bitcoin
Bitcoin has a number of advantages, the first of which is low inflation. Each year, currencies rise with inflation, however as bitcoin is designed to be finite, it will not be affected. Bitcoin have stated only 21 million bitcoins will ever be released meaning there will only be one bitcoin per 500 people - will you bag yourself a bitcoin?
Secondly, bitcoin payment transfer is very simple, there is no need to worry about the usual limitations of payment transfer. As the user is in control, it is possible to send and receive payment anywhere and at any time of the day or night. Additionally, as this is peer-to-peer rather than through an agent, sending money could never have been easier.
A further benefit of using bitcoin is in terms of control and security. As mentioned, the user has complete control over their transactions and payments, which can be made without disclosing any personal information regarding the user, helping to protect against identity fraud.
Currently, with traditional currency, if a user requires faster transfer of payment, additional costs are incurred, but with bitcoin there are no fees (or very low fees). As digital currency exchanges help merchants process transactions by converting bitcoins into flat currency, lower costs are incurred than there would be if paying by credit cards. Additionally, with traditional transactions buyers have the ability to claim money back after a seller has sent the products, however with bitcoins when the payment has been sent the seller can safely send the products to the buyer with sound knowledge that the payment is being processed.
Finally and one of the most important advantages, bitcoins cannot be stolen. Currently, and quite concerningly, there are only a few steps involved in gaining access to our finances via internet banking, however, with bitcoin, physical access to a users computer is required. Tying in with this fact, as payments cannot be reversed and they do not carry personal information, merchants are provided with a safe place to do business, especially in areas where fraud is traditionally high.
Drawbacks of bitcoin
As bitcoin is relatively new, there are drawbacks which may prevent users from adopting digital currency in favour of physical types. The first of which is the currency is still in the development stage and has a number of incomplete features and challenges that have yet to be overcome before it reaches complete success.
Secondly, the currency has not reached it’s full potential due to lack of awareness from the public and many are unaware digital currencies even exist not to mention bitcoin. As such, the currency has to place itself more prominently in the public domain to both inform those who are completely unaware and educate those who may consider using the currency in their everyday lives. As well as a lack of awareness amongst non-users, there remains a lack of understanding amongst those who have adopted bitcoin already. This is illustrated through a recent study conducted in the UK, which revealed that 43% of consumers did not understand how the currency worked. As such, the public must be made aware of the purpose,and benefits of bitcoin in order for it to be a success.
Despite the widespread coverage and clear potential benefits of bitcoin, one of the largest online retailers, Amazon, has stated they have no plans to begin using the digital currency as they have heard from their customers that it ‘is not right for them’.
Only time will tell if bitcoin will become commonplace in business or if it will simply prove to be a fad, whereby bitcoins are purchased for their exclusivity and not their true purpose. We’ve tried to cover both sides of the (bit)coin and we look forward to watching how this digital currency progresses in an ever changing digital world.