Bitcoin appears to be finally entering the mainstream after years of waiting patiently on the sidelines.
A number of high-profile companies are now accepting the digital currency for online payments – but is this a good or bad thing?
John Donahoe, CEO of eBay, says Bitcoin is an exciting prospect that holds huge potential in the world of digital business.
He also claims it’s going to play an important role in the future of payment service PayPal, admitting the ecommerce giant will one day have to integrate digital currencies if it wants to remain among the most popular internet payment platforms.
Apple, who banned Bitcoin wallet apps as recently as 2013, is even beginning to lighten up on the digital currency, while Amazon, who claimed that it would avoid Bitcoin at all costs, has been awarded a Bitcoin-related cloud computing patent.
So should your international ecommerce store follow suit and accept Bitcoin as a form of payment?
Here we take a closer look a Bitcoin and discuss its emerging role.
Bitcoin in layman’s terms
Bitcoin allows transactions to be performed without banks or any other middlemen. Just the buyer and the seller are involved in the payment process, transferring the digital currency from one digital wallet to another.
These transactions are processed, verified and publically recorded by so-called Bitcoin enthusiasts around the world.
You can acquire Bitcoins by exchanging them for goods and services, buying them from someone, or buying them directly from an exchange. All you need is a Bitcoin wallet to store them in – something which can be installed as an application on your smartphone or computer and accessed via a web browser.
These exchanges have spawned whole new industries. For instance, independent services now exist, such as Coinorama, that can monitor a Bitcoin network, exchanges, and blockchain to provide users with lots of information, including the price of the latest trade, trading volume, direction, and currency-to-USD conversion rates.
But in some countries Bitcoin is illegal – such as Iceland and Vietnam – while a number of global government agencies are increasingly worried about the implications of Bitcoin due to its ability to be used anonymously.
This means it is a potential instrument for money laundering, allowing criminals and terrorists to make private and irreversible payments.
Watch this video for a detailed explanation of how Bitcoin works.
Countries where Bitcoin is illegal
Since Bitcoin directly bypasses the established financial systems of sovereign nations, various countries have taken steps to curb its usage by either approaching it as a foreign currency or an illegal commodity.
In Iceland, for example, buying and selling Bitcoin is prohibited. This is because its central bank, which restricts how citizens send their money abroad, views the digital currency as a foreign currency.
Vietnam, meanwhile, also has some level of Bitcoin ban in place. It states that the use of Bitcoin and other similar means of payment is not legally recognised or protected, making investment in such currencies potentially very risky.
In most countries around the world, however, Bitcoin is neither illegal nor totally unregulated. It’s somewhere in the middle.
Russia and Thailand, for instance, previously outlawed digital currencies then proceeded to backtrack.
The Bank of Russia is now collecting information about digital currencies and is not blocking Bitcoin, contrary to a previous statement which warned that buying goods, services or real currencies using the currency would be viewed as a potential involvement in dubious operations and financing terrorism.
In Thailand, on the other hand, the legalities surrounding the use of Bitcoin are a source of confusion for many.
Thai-based exchange Bitcoin Co Ltd suspended trading in 2013 after a meeting with the Bank of Thailand in which the bank allegedly declared trading in the digital currency illegal. But the exchange reopened earlier this year after receiving a letter from the bank seeming to indicate that it could trade after all.
The bank has since warned consumers that Bitcoin is not a currency and that its use comes with inherent risks – a statement that echoes similar sentiments to others issued from central banks around the world including Mexico and Germany.
In China, meanwhile, banks are banned from processing Bitcoin transactions, cutting off Yuan-for-Bitcoin exchanges from doing business there.
Positives outweigh negatives
In general, however, regulators seem to be increasingly willing to hold off introducing impulsive legislation on Bitcoin in favour of working to find the best resolutions to prevent money laundering and fraud without stifling innovation. This is because the positives of using the digital currency heavily outweigh the negatives.
Bitcoin transactions are protected by the robust public-key cryptography that ensures emails can only be opened by their intended recipient, while users are in full control of their payments and cannot receive unapproved charges.
The digital currency is also completely impossible to counterfeit, offering significant protection against many forms of financial crime. It also allows money to be secured against theft and loss using a combination of very strong and beneficial tools such as backups, encryption and multiple signatures.
Retailers around the world are therefore beginning to throw caution to the wind in favour of Bitcoin.
Big retailers jumping on the band wagon
Online dealer Overstock, which sells a wide range of designer brands and home goods, became the first major retailer to accept Bitcoin at the beginning of this year. It reportedly sold US$124,000 worth of goods via the digital currency in the 21 hours immediately after the payment option went live on its website.
A number of other large companies soon followed suit, including electronics retailer TigerDirect and department chain Lord & Taylor, and the trend has continued to gather pace ever since. Even travel firm Expedia is now on board.
United States-based subscription satellite TV provider DISH and online computer hardware and software retail giant Newegg now accept Bitcoin as well – and many more firms are expected to make the switch in the coming months.
Small businesses aren’t missing out on the action either, with a significant number already accepting Bitcoin.
What does the future hold for Bitcoin?
It is predicted that Bitcoin will change how ecommerce is conducted in the future, enhancing the experience for both the buyer and the seller.
Experts see the digital currency as a “sexy” solution that can speed up transactions and make doing business overseas much easier. Even if Bitcoin itself does not become the money of the internet, the technology that it uses could provide the springboard for future online payments systems to blossom.
Around US$300 million has been pumped into Bitcoin ventures worldwide in the past 18 months, according to official figures, with as much as US$200 million of this sizeable total dished out in 2014 so far.
A similar figure is expected to be invested once again before the year is out – and many believe Bitcoin will revolutionise global trading in the same way that email, MP3s and digital photography influenced the world we know today.
It could become particularly prevalent in developing countries, where people don’t have easy access to financial institutions or services like PayPal because it’s too risky. That would, however, all change with Bitcoin. Watch this space!