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“Bitcoin is a virtual currency.” How many articles have you read recently containing this phrase, or something similar?

I find this quite annoying, as it’s a bit like saying “a computer is a word processor”.

It’s true… but it’s not a comprehensive definition.

Bitcoin is big news

It seems like everyone in the digital marketplace is talking about Bitcoin. For me, this is great. As a big cryptocurrency fan, I want as many people talking about it as possible.

There’s only one problem. The rush to get a post out and join the virtual discussion has resulted in lots of people writing articles that they just haven’t had enough time to properly research, leading to a comments section full of angry Bitcoin enthusiasts.

The biggest mistake that’s often made is only talking about Bitcoin as a currency. In fact, it’s not just a currency, it’s an open-source, decentralised exchange capable of hosting a whole range of financial products.

It sounds a bit complicated, but think about it like this: if Bitcoin were a smartphone, the Bitcoin currency would be one of the first available apps.

Implications of Bitcoin

Bitcoin worldwide

Recently, Bitcoin has been described as ‘Napster for finance’. That’s a pretty bold statement. Will cryptocurrencies really disrupt the finance industry in the same way that peer-to-peer file sharing has totally changed the music business? I think yes, and here’s why.

In an annual report filed to the US Securities and Exchange Commission, eBay stated that: “PayPal… faces competition... from services such as... Coinbase and Bitpay that help merchants accept and manage virtual currencies such as Bitcoin.”

Cryptocurrency-based merchant services seem to rarely make it into standard Bitcoin blogs, which is crazy, because they’re kind of a big deal.

BitPay, a payment service provider specialising in eCommerce solutions for virtual currencies, already provides services for a number of web giants, has been invested in by Asia’s richest man and has processed over $100 million in Bitcoin transactions.

The service allows web businesses to accept payments from customers in their local, traditional currency, use the Bitcoin payment network to transfer the funds and receive the money in their own local currency. And that’s not the only use. There’s also an API which employees can use to get paid in Bitcoins.

This is just one of the first startups to innovatively use Bitcoin’s payment infrastructure. The real game-changing aspect of Bitcoin is the fact that it’s an open-ended project. All the code is available for any developers to take and do what they want with.

This has resulted in hundreds of other cryptocurrencies based on the original Bitcoin idea, creating a kind of development sandbox for the main Bitcoin project.

Altcoins: alternative cryptocurrencies

Mastercoin

Granted, some of these ‘altcoins’ are more worthwhile than others, but the nature of open source means that the most ingenious and worthwhile ideas will inevitably rise to the top.

One of my favourites so far is SolarCoin, a project that aims to incentivise the adoption of solar power by rewarding generators with virtual currency.

Out of all the altcoins, the one to really watch out for is Mastercoin. The project hopes to build upon the Bitcoin infrastructure to allow users to create ‘smart property’; in other words, the ability to tie any kind of property - digital or otherwise - to unique tokens that can be traded using the Bitcoin infrastructure.

Stocks, shares, bonds, employment contracts, houses, amusement parks - you name it. Anything can be assigned a value and traded, instantly, internationally, for little or no cost. That potentially eliminates the need for bankers, brokers and conveyancers.

If that’s not disruptive, I don’t know what is.

Nick Chowdrey

Published 10 February, 2014 by Nick Chowdrey

Nick Chowdrey is a Content Marketing Executive at Jellyfish Online Marketing and a contributor to Econsultancy.  You can follow Nick on Twitter, LinkedIn and Google Plus.

5 more posts from this author

Comments (20)

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Shawn

Here is the problem with BitCoin

1. 95% of the people who own it do so because they hope that it will one day make them rich if they hold on long enough.

2. The prices jumps up and down like a spooked kangaroo so you have no idea how much you are spending or accepting.

3. SOMEONE COULD ROB YOU IN PERSON OR ONLINE AND TAKE ALL YOUR BITCOIN, not just your wrist watch and your wallet. Hey this would make a good plot for a movie wouldn't it?

4. BitCoin users are so annoying with their t-shirts and conspiracy theory anti-establishment ways.

5. BitCoin is backed by nothing. The dollar is backed up by the US and world economy. Although not nearly perfect, its a hell of a lot safer than a digital currency back up by current hype trends.

over 2 years ago

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Barbara Hoover

Thanks for sharing this information Nick. I learned something new about Bitcoin after reading this post.

over 2 years ago

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Chris

@Shawn, the author is pointing out that the Bitcoin concept can be used for more than just a payment mechanism.

It's a giant, open to all, maintained by the participants, ledger of ownership and transactions. To me that sounds like an ideal replacement for any kind of property rights e.g. domain registration

over 2 years ago

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JB

Shawn,

A couple of points regarding your post.

1. BTC will cost as much as people would be prepared to pay for it. There's also a finite amount of it (as of this moment).
2. Price volatility is normal for any new currency - virtual or not.
3. The dollar is backed only by the US's reserve. And let's face it, it's not doing as well as it used to (constantly raising debt ceiling).

BTC is a risky "investment", but as always, the higher the risk, the higher the potential return. I bet you wouldn't be saying what you're saying if you "mined" yourself a couple of BTC a year ago.

You point 4 proves that you're the one with a tin-foil hat on :)

over 2 years ago

Nick Chowdrey

Nick Chowdrey, Content Marketing Executive at Jellyfish Online Marketing

@Shawn

You're 100% allowed to be sceptical at this time. I think we're at a phase with Bitcoin much like how we were with the internet in the 1990s - it's a new idea and that rightly make people cautious. I think if you do a little bit more background reading you'll find that the idea is so genius that there's no way it won't become mainstream adopted, just like the internet we're communicating on at the moment :)

over 2 years ago

Keith Horwood

Keith Horwood, Head of Performance Marketing at CoinDesk Ltd

It is early days yet, but a very interesting area.

Nick, you should follow @CoinDesk for the latest developments (if you don't already).

over 2 years ago

Nick Chowdrey

Nick Chowdrey, Content Marketing Executive at Jellyfish Online Marketing

Yes, Keith, you are ever-present on my TweetDeck feed :P

over 2 years ago

James Gurd

James Gurd, Owner at Digital JugglerSmall Business Multi-user

Hi Nick

Thanks for sharing your thoughts on crypto currency.

I'm torn on whether or not this has genuine retail ecommerce legs or not. I know a few high profile retailers have embraced it, and niche sites like Petspyjamas also, but part of me wonders if we're at the hype stage and it will blow throw with no long-term traction.

My main reason for doubting its longevity is the impact that regulation will have. One of the big attractions to things like Bitcoin is that it's free from regulation and the associated transaction fees of traditional online payment methods.

However, is it really likely that the respective Govts of this world won't be persuaded into regulation by the financial institutions as it will disrupt their revenue stream? There is already talk in the US and UK about how regulation could be managed.

If regulation steps in and fees creep up, will it still be so attractive?

And if regulation doesn't happen, will most retailers be happy to jump in with such price volatility?

I don't yet understand enough about the underlying platform architecture to grasp the wider potential but from a pure ecommerce point of view, i remain healthily sceptical.

What's your take on the impact of regulation?

Thanks
james

over 2 years ago

Nick Chowdrey

Nick Chowdrey, Content Marketing Executive at Jellyfish Online Marketing

@James

Those are some excellent points. Because it's an emerging technology and there are therefore very few precedents I think it's hard to tell how regulation will pan out.

For example, would it be possible for a government to legislate against ALL cryptocurrencies? Or if, say, there are some heavy Bitcoin regulations put in place, could people just switch to Litecoin, for example?

Indeed, even if all cryptocurrencies are legislated against, surely a slightly tweaked altcoin could be created to fall outside of the definition? We could end up with a big (very costly) game of legislative cat and mouse.

I think this might discourage some legal institutions to legislate in the first place. This is kind of what we're seeing already with Bitcoin being classified as an asset here in the UK. That's HMRC basically saying "Errrrrr we don't want to have to deal with this."

I could go on, but that would be a long comment for you to read. Maybe I'll make this the topic for next month's post.

over 2 years ago

James Gurd

James Gurd, Owner at Digital JugglerSmall Business Multi-user

Hi Nick,

Thanks for the reply, interesting to hear your take on this as a tech writer.

It's interesting to hear suggestions it may be treated as an investment, so you'll be taxed on the gains (as i understand it). Sounds rather complicated to me and like it's going to cost an arm and leg to administer. If the currency continues to fluctuate heavily, you could be making lots of mini losses and gains. So you'd have to have all transactions reported and available for assessment. And we'd have to declare in tax returns as individuals. Or am i missing the point?

I think a follow up article on the implications of this would make a brilliant post.

Shout if you'd like any contribution, it's an area i'm really interested in as i've been following the evolution of mobile payments and see crypto-currency in the same light as a disrupter.

cheers
james

over 2 years ago

Keith Horwood

Keith Horwood, Head of Performance Marketing at CoinDesk Ltd

There are be KYC/Money Laundering rules same as most finance companies, especially where you purchase or sell bitcoin.

Retailers not so much. I doubt petspyjamas will see much benefit in accepting bitcoin, but scan computers may well do at this early stage. Good for their PR anyway.

UK does not want to stifle innovation in a potential multi-billion £ industry...

over 2 years ago

Keith Horwood

Keith Horwood, Head of Performance Marketing at CoinDesk Ltd

Also - If anyone would like to try it - You can buy it from loads of local shops using paypoint technology. You just need a wallet address to send to and to approve your account on bittylicious. Read more here: http://www.coindesk.com/can-now-pay-cash-bitcoin-28000-uk-stores/

Bear in mind there are problesm with bitcoin wallets on iPhones at the moment... but that is another story.

over 2 years ago

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Austen Hartley

Hi there, thank you so much to you Nick and responders below, or above my comment... for the pragmatic solid consideration in discussion about this. I know very little about this so far in solid facts but I can already see open ended value collapse through via points. I appologize to for not mentioning your name in comment to your comment, Im writing from a Tablet that blocks off the page for the writer app and Im new at it. Im dead scared it'll loose all Ive written. The comment was about a virtual currency having no backing. Nor does the Federal Reserve. Its an illusion.The dollar isnt backed by equal worth. It eas backed by silver, you could withon yoyr right deman at the reserve to demand your note for its silver guarentee and equsl worth. They wouldnt even give you a promisary note because it has no fixed value appointment. The only promisary notes in trade are the loan reconciliations between the World bank and the feeding reserves around the world. Nothing has value. You will thsnk me one day Ok? Buy Gold. The currencies will have to revert to the Gold standard. Sorry for the garbled text.

over 2 years ago

Hugh Gage

Hugh Gage, OWNER at engage digital ltd

Gold is falling like a rock (now back to 2010 levels from high in 2012) and people tend to revert to Gold (bullion) when the economy is in the doldrums and stock markets are in long term decline which is why it did so well during the financial crisis.

There was a time when even the € was considered a viable alternative as a global currency but regardless of what institution or how the US$ is backed, it is the global currency and very entrenched at that so I imagine would take a long time to shift.

I think the points made by James and Nick in their mini discussion about regulation are important. I can't see govts allowing a currency / virtual trading exchange to develop without wanting to regulate / skim it.

The music industry was of little interest to governments, only the record company, recording artists and fans care so they worked out the Napster issue themselves, but something as significant as a replacement trading exchange / currency seems to me to be another ballgame altogether and one which governments would care very much about.

I imagine that Bitcoin could end up being a long term feature of the financial marketplace but not really becoming a replacement for anything.

On a personal level, until I get regularly paid in BC and goods are widely available in the currency (via whatever exchange mechanism) it will remain a curiosity.

over 2 years ago

Nick Chowdrey

Nick Chowdrey, Content Marketing Executive at Jellyfish Online Marketing

@Hugh

You're definitely right about the dollar. It's way too entrenched for BTC to replace it. But that's exactly the point of my article - BTC as a currency has its uses, but its worth as a payment network is what everyone should really be talking about.

JR Willet - the founder of Mastercoin - says that the Bitcoin protocol is to distributed finance what Internet Protocol has been to distributed information. This is probably a better analogy than the Napster one. Cryptocurrency has the potential to liberalise/revolutionise finance in the same way that the internet has liberalised/revolutionised communication.

over 2 years ago

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Mike Peters

I don't believe there's a business reason for a retail site to start accepting BitCoins. There's just too small of an adoption rate at this point and I'd say 99.9% of the population has no idea how it works.

That said, working in the retail electronics space, I've seen several competitors start to proudly tout they accept them. I think it is more of a status symbol than a business decision. "Hey look how tech savvy we are - we accept BitCoins!".

over 2 years ago

Nick Chowdrey

Nick Chowdrey, Content Marketing Executive at Jellyfish Online Marketing

@Mike

I'd say 99.9% of the population don't know how the internet works. Does that stop 24 million people a day in the UK alone connecting to Facebook?

In terms of adoption, in my opinion it's just going to get faster and faster. The only thing standing in the way is uncertainty.

over 2 years ago

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griffunt

Buy mining power online. Then trade with it or let it mine bitcoins.

https://cex.io/r/1/griffunt/0/

over 2 years ago

Hugh Gage

Hugh Gage, OWNER at engage digital ltd

This kind of news doesn't do much to help Bitcoin as a currency or a trading platform. http://www.economist.com/blogs/schumpeter/2014/02/bitcoin-s-woes

I think it has a long way to go before it can be taken seriously.

over 2 years ago

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mahdi

invest on bitcoin and earn Lifetime income
even 0.01 BTC
www.bitcoinlti.com

over 2 years ago

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