Should we all embrace Bitcoin for mobile payments?
The love affair with Bitcoin is clear. The cryptocurrency has been in the news every week. In early March, stories about the death of Autumn Radtke, CEO of First Meta, a virtual currency exchange, made the rounds under headlines describing her as a ‘Bitcoin CEO’. The same week, stories purportedly identifying founder Satoshi Nakamoto were shared by Newsweek. The month before, the buzz was around the bankruptcy of Japanese Bitcoin exchange Mt Gox and the theft from Flexcoin that shut it down.
Bitcoin’s rise to fame has been based on two things: the fact that a Bitcoin could potentially rise further in price, netting the buyer a quick profit, and that the owners are hard to track, so it can potentially be used for transactions of illicit goods. At the same time, well-known brands from Overstock.com to Zynga are accepting it, so it can actually be used to buy quite a lot of items today.
The craze has spurred various countries in Asia to come out with policies on Bitcoin. Singapore and Japan for example do not consider it legal tender but will tax transactions as barter trades as appropriate.
A transaction between a buyer and the seller however can go horribly awry because the idea of a cryptocurrency is so new. In March 2014, a case surfaced in the UK of a Bitcoin collector who lost all of his Bitcoins on Ebay to criminals posing as legitimate buyers. Believing that the buyers were genuine, Will Phillips transferred the Bitcoins over after PayPal payments were made. PayPal discovered the PayPal accounts had been compromised in the meantime, so it reversed the transaction for one buyer and refused to release the funds from another to Phillips, who now has no coins left to show for his trouble.
Such scams have happened before, and PayPal does refund buyers whose accounts had been hacked. Sellers of ‘intangible goods’ however are not protected, and Phillips says Ebay and PayPal are chasing him for money. In the meantime, the new owners of the Bitcoins cannot be traced because of the way Bitcoin has been designed.
While the above case is about buying and selling the coins themselves, problems could also occur when Bitcoins are used in place of cash. Could a merchant be unable to prove that a payment was truly made? The digital nature of the cryptocurrency does mean that hacking could potentially occur at any stage along the transaction process.
Even though Bitcoin is the best-known and most widely used cryptocurrency, it is still too early to identify all of the problems which could crop up, nor how to address them. If you would like to accept or buy with Bitcoins, be aware that the risks of theft, possible regulatory hurdles and price crashes are real.
Merchants which choose to accept Bitcoin might benefit greatly if the currency grows in value quickly, but they could also lose greatly if the prices were to go down instead. As of March 2014 it is US$659 to a Bitcoin, but has hit a high of US$1000 to a Bitcoin in the past. Different Bitcoin exchanges offer slightly different rates for Bitcoins as well.
Bear in mind as well that Bitcoin owners become very attractive targets for hackers due to the potential fortunes that can be made from the cryptocurrency. Security should be a priority for any company, but even more of one if Bitcoins are openly being accepted as currency on the premises.
Bitcoin has the potential to become as common as the US dollar for commercial transactions. There are already Bitcoin ATMs in Singapore and Hong Kong, and elsewhere in the world as well. With other cryptocurrencies crowding into the arena, it may take some time to identify the real winners of the cryptocurrency phenomenon. In the meantime, sit back and enjoy the show.