Bitcoin is one of those things everyone seems to have heard about — but few people can define and even fewer understand how it works. But maybe it's time that you should learn.
More and more businesses are starting to accept the digital currency: from restaurants and retailers to sports teams and casinos. Last November, Richard Branson announced Virgin Galactic would allow payments in Bitcoins.
Zynga began testing Bitcoin payments for games this month. And now eZanga.com, a search engine and digital marketing company, has opened the virtual vault, too.
Capitalizing on a Trend
It's hard to say what's driving more businesses to accept Bitcoin — belief in the currency or a desire to capitalize on the publicity generated by accepting it. While Bitcoin is still mysterious and ephemeral in the minds of many, it is nonetheless a hot topic. It recently made the cover of Bloomberg Businessweek and clearly captures the imagination of many online searches, as the following chart shows:
This week, the interest seeped into the B2B space when eZanga.com, through a partnership with the US-licensed Coinbase, announced it was joining the likes of Overstock.com, the Sacramento Kings NBA team and a growing number of other businesses that accept Bitcoin. They all apparently believe Bitcoin will increase business (or buzz), as well as security and transaction control.
Should other B2B businesses consider the potential benefits in the fledgling cryptocurrency, especially in light of increasingly serious data breaches that make credit cards seem downright insecure? Are we on the verge of redefining our whole concept of money or toying with the stuff of yet another tech bubble destined to implode?
Bitcoin, in Brief
Bitcoin is an experimental, wildly volatile decentralized digital currency. Instead of exchanging physical coins, users of Bitcoin use the Internet to record money transactions in a global ledger. This ledger is maintained by a peer-to-peer network of computers called miners, who are compensated with Bitcoins for their efforts.
Is it more secure than other forms of payment? In light of numerous recent data breaches, including Target's loss of customer data, a South Korean firm's carelessly in passing data on 20 million customer credit card accounts to marketers on a USB stick and reports of a massive incident in Germany that exposed the personally identifiable information of 16 million people, some people argue that it is.
Looking to a Bitcoin Future
But is Bitcoin the answer? We searched for answers at Bitcoin.org, a site "dedicated to help Bitcoin to develop in a sustainable way." And here is what we found. Yes, it is secure if used correctly. But the price is volatile, payments are irreversible, instant transactions are less secure than they are with credit or debit cards and the whole currency is still experimental.
In November, two Cornell University computer scientists publicized a major flaw that leaves the $1.5 billion Bitcoin market open to manipulation and a potential takeover.
Even so, more businesses seem intrigued by the possibilities of using the currency. That could lead to ever wider acceptance of Bitcoin or, perhaps, to the creation of a more consumer/banking friendly model.
What are the business benefits? To start, no or very low transaction fees (which also makes it ideal for micro-transactions). There are no credit card details to store, which reduces the chance of future fraud or theft — reducing the data privacy burden on businesses. In addition, both parties in a Bitcoin transaction can convert to dollars or another currency on the spot, opening up easier global trade.
While Bitcoin is blazing a trail, there are dozens of other virtual "coins" emerging. How long will it be before another business, either a start-up, an existing player such as PayPal or even a major bank, tries to muscle in on the electronic currency action?
Although Bitcoin has been banned in some countries — including Canada — and is under scrutiny in others, it's still early in the game. No one can really predict with accuracy where it will go from here.
Planning the Perfect Penny
Just recently, investor Marc Andreessen called Bitcoin the "first practical solution" to a longstanding problem. He wrote:
The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate."
Andreessen’s venture capital firm, Andreessen Horowitz, has invested just under $50 million in Bitcoin-related start-ups and is looking to invest even more.
Considering how short a time it took the eBays, PayPals and Amazons of this world to take hold, it is not beyond the realms of possibility that Bitcoin will rapidly grow into a defacto standard for online or real world transactions. If it fails, there are plenty to take over with Ripple Network among the many rivals.
Are businesses who rely on e-commerce really poised to benefit? Are you interested in the security and transferability of virtual currency? More importantly, what are the odds you will start accepting it this year?
Title image by Carlos Amarillo (Shutterstock).