Before I start, I need to clarify that I’m relatively late to the Bitcoin party. (21st December 2013 in truth.) But ever since I made my first purchase of 0.2 Bitcoin, monitoring this bizarre crypto-currency has become a little bit of an obsession.
I’d actually heard of Bitcoin back in January 2013. But I’ve had enough experience working in digital not to get too excited about anything new (Yammer, Wave, Leap etc.)
At the time, the PR around it was generally negative and based on the fact you could buy illegal things without trace. Which, incidentally, is still the argument today – but at the time I didn’t really see or understand how it could be used to improve the digital world.
In all honesty, the reason why I started to pay attention was the appearance of recent headlines like ‘The Bitcoin Pizza Worth $7 Million Today’ and ‘Search for hard drive with £4m-worth of Bitcoins stored’. For me, the fact that the price had gone up over 1400% since March 2013 – with the Bitcoin still in its infancy – was an interesting prospect. Plus I do like a bit of a gamble!
Since my purchase just before Christmas, I’d actually been feeling a little unsure about the whole thing, mainly because I knew very little and had just paid a stranger for essentially nothing. However, now that I’ve spent some time researching the principles of Bitcoin I feel I’m in a much better place to share my experiences, as well as my observations / thoughts / predictions:
Note – if you know nothing about Bitcoin here’s a very quick overview
I’ve heard many users talking about how simple it is to pay for goods and services with Bitcoin, however in my experience this isn’t the reality. The whole infrastructure was originally built for (and by) developers so inherently needs a big user-friendly kiss to help out the average user.
I feel the issue lies around the wallet concept. I have a secure wallet on my home computer where my 0.2 Bitcoin is stored – but it’s locked to that device and not accessible unless I have the computer with me.
You are now able to store your coins online, or on a separate wallet on a phone. However, I keep reading that they shouldn’t be stored this way due to higher security risks. Until someone from a trusted source (Google?) comes along and provides a less daunting solution, I won’t change my opinion that it’s pretty painful to manage.
One of the big selling points that pro-Bitcoin users talk about is how there are no fees for transactions. This is correct in that it would be almost free to send my coins direct to another user / retailer. (0.0001 BTC fee).
The benefits of Bitcoin become apparent when you look at the following examples:
– Free transfers from one country to another (at the moment Western Union normally charge around 5%)
– Paying for goods in a store (credit card charges are around 3% in fees to process)
If users can pay with Bitcoin, then it would essentially eliminate any need for middlemen or banks and save a large percentage each year.
But in reality, to make it quick and simple for retailers to accept Bitcoin – and for users to pay with it – a middleman is inevitably needed to ‘streamline’ the process. Bitpay.com is one of the most respected ecommerce merchants in this emerging market. They offer a simple approach to accepting Bitcoin, but charge a fee for this service (admittedly a cheaper rate than PayPal / Sage etc.). In addition, for retailers to then convert that coin into local currency there are additional ‘cash out’ costs – making the option less desirable.
The swing in Bitcoin value is way too volatile for serious retailers to start accepting the crypto-currency on a large scale. If it stabilises, then retailers such as Amazon will possibly start to trade, but at the moment there is no value in accepting Bitcoin other than the press it attracts. Cash will still be king for a while yet.
One thing Bitcoin will do is to open the eyes of the banking industry, since they’ve been charging extortionately high translation fees since the birth of the credit card. Bitcoin at the very least will start to change how money is transferred online.
The massive spike in value is not being led by retailers jumping on board, but instead by investors chasing a short term profit (unfortunately including me, although I am genuinely interested in it). Bitcoin can only survive if retailers start to catch up, which will mean dropping the services currently provided by their traditional banks.
I can’t imagine banks are threatened at the moment because Bitcoin is not affecting their revenue stream; however as soon as this becomes a threat I can very easily see the lawyers coming out to play.
There are some very close parallels between Bitcoin and Napster. The first initiative of its kind to change a stale industry, Napster was quickly crushed once it started to seriously affect profits. If Bitcoin does disappear, then there will be a slicker, more marketable and more corporately-backed version right behind it.
As I write, my £81.16 investment has grown to a whopping £127.18. So I can’t argue that it’s not a pretty good return to date. I do, however, have major issues with the whole infrastructure around Bitcoin. It will almost certainly be impossible for me to sell my 0.2 coins for anywhere near the full price once the third party agencies have taken their share, and my prospects of finding a retailer that will accept Bitcoin are slim to say the least.
The principle of a peer-to-peer currency is fascinating and the price of goods will come down if retailers stop using banks to process payments. In reality, however, I think we’re a long way from adopting a centralised digital currency. Not unless it’s stable and immediately equivalent to good old cash.