Bitcoin, a decentralized crypto-currency that is not beholden to any traditional regulated payments system, has caused quite a stir online and in the news, and it looks like it’s here to stay. Faster and less expensive than traditional currencies, bitcoins allow users to purchase goods and services in exchange for credits, which are then stored and validated simultaneously across the entire network of bitcoin transaction processors around the world. Unlike other currencies, bitcoins have no central bank to issue them, but are generated digitally by “miners” who essentially earn bitcoins by tracking and authenticating lists of bitcoin transactions in general ledger technology. They also got their first regulated U.S. exchange earlier this year.
The Need for Real-Time Payments
Bitcoin provides a few key benefits—anonymity, real-time settlement, mobility and cost-savings, among them. The proof that these benefits are legitimate market-drivers can be seen in bitcoin’s continued and increasing popularity. U.S. Senator Rand Paul, a 2016 U.S. presidential candidate, is embracing the new technology and has announced that he is accepting bitcoin donations to support his campaign. In addition, Taringa!, a Latin American social network with a user base of 75 million people, plans to offer bitcoin transactions to users because of the vast number of unbanked people – more than 250 million, according to the World Bank – living in the region.
As of now, only 13.5 of the 21 million bitcoins are in circulation; that fixed supply is expected to be issued in its entirety by 20451. Of course, with the introduction of a new technology, it’s inevitable that there will be detractors and supporters.
From a consumer’s point of view, bitcoin is beneficial because it protects the user’s identity and provides real-time settlement. Bitcoin is based solely on a person-to-person structure so there is no affiliation to banks, central authority or the government. Unlike online transactions using debit, credit or some prepaid cards, personal information is not disclosed in bitcoin transactions. This protects the consumer’s personal information by adding an additional layer of protection – more important now than ever. Bitcoins also can save consumers money because there’s little to no cost to send or receive them.
Despite these benefits, bitcoins come with risks. Their value has been wildly erratic — if you bought a pile of bitcoins in January 2014, you are probably not a happy camper today. Bitcoin transactions also are irreversible. If someone accidentally sends money to the wrong recipient, that recipient is the only one who can return or void the funds. And in the case that a bitcoin wallet gets hacked, there isn’t much, if anything that can be done about it.
For businesses, Bitcoin is a money saver. According to Digital Journal, there are currently 400,000 merchants that already accept bitcoin, including Amazon, CVS and Home Depot-. That’s more merchant outlets than those that accept Apple Pay. In addition, even government bodies such as the NASDAQ are beginning to accept bitcoin. There’s no need for an expensive POS system because most bitcoin merchants use simple smart-device applications to process payments. Oftentimes, only a software-integration into the current POS would be needed to accept bitcoins. However, return and refund policies must be made clear to consumers. In order to avoid the volatility of bitcoin’s changing values, it would be more beneficial to base refunds on the original dollar price, rather than the Bitcoin price. While some merchants may hesitate with bitcoin, having aggregators that convert bitcoins to U.S. dollars may increase merchant acceptance by removing the risk.
While bitcoin continues to develop and its popularity increases, questions and new ideas about traditional currencies and exchanges are surfacing. Is there a way to get to real-time payments and settlements while avoiding clunky batch systems? Can payments ever be as seamless as those made with bitcoin? Will traditional currencies like the dollar or euro ever develop real-time capabilities? Can traditional currencies be digitized? How aggressive will regulators be in trying to control or even shut down crypto-currencies? Only the adaptation to technology advancements over time will answer these questions. For now, the best idea might be to accept that technology is constantly changing the way consumers and businesses work, making it important to keep up-to-date with the developments of new payment types.
Taking small steps to incorporate new technological payment systems should be the ideal thought process of the regulated world. For now it’ll be consumers who keep this system alive. Having options is generally what people want and bitcoin is a truly unique option when buying and selling goods and services.