If you have followed the growth of Bitcoin and other virtual currencies over the years, the concept of e-money may have seemed more of an interesting experiment used by hitmen and malware developers – like the much-publicized Cryptolocker (see Sinu blog, 12/1/13).
Since reputable businesses have started using Bitcoin and other virtual currencies because of its convenience and its ability to facilitate international transactions, it’s important to understand what it is and how it might affect the way we do business in the near future.
Bitcoin debuted in 2009 as a way to make anonymous transactions across borders without third parties such as banks. (See Washington Post’s 90-second video on the history of Bitcoin.) Today, Bitcoin ATMs are popping up across the country, and can be found in several US cities, including Austin, Seattle, Las Vegas, and Boston. Robocoin, the Las Vegas company installing these virtual currency teller machines, says ATMs will soon be available in more cities, including New York City and Los Angeles.
However, several scandals and the fear of doing transactions using an unregulated currency have made businesses reluctant to adopt Bitcoin. For instance, earlier this year, Tokyo-based Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy claiming hackers had stolen Bitcoin valued at $460 million, leaving users with little recourse and experts speculating about the crytocurreny’s demise. According to the Washington Post report, “Bloomberg conducted a poll of financial professionals in July that indicated people were still wary of the digital currency, with 55 percent surveyed agreeing that it trades at ‘unsustainable, bubble-like prices,’ and reported Bitcoin prices have catapulted to as little as $341 this year from highs of $900.”
In spite of the risks, the tide may be turning for Bitcoin and other virtual currencies. Paypal, the eBay-owned mobile payment system, recently announced that it would soon let customers pay using the virtual currency. According to a Forbes report, “PayPal announced that it was partnering with Bitcoin processors BitPay, Coinbase and GoCoin to allow its merchants to accept the cryptocurrency for digital goods like online games and downloadable songs. It’s a second baby step for the payments giant toward full Bitcoin adoption after the company’s Braintree unit, a mobile payments provider, said earlier this month that it was working on a feature that would let customers of businesses like Uber and Airbnb pay with Bitcoin.”
This comes on the heels of several other cryptocurrency announcements. Apple Pay debuted with the iPhone 6 to a flurry of media coverage and speculation about the demise of traditional billfold manufacturers (see AdAge, Could Apple Pay Kill Traditional Wallet Makers) and, more importantly, how it would affect Google Wallet, who entered the space over two years ago. Alibaba – China’s largest e-commerce company (it just made headlines with the world’s largest initial public offering) recently restructured its deal with a version of Paypal called Alipay. The Wall Street Journal calls this online payment platform a “potential golden goose” for Alibaba.
Even countries are getting in on the e-money train. Ecuador recently announced it will develop a government-backed virtual currency by the end of this year. According to a report by TechSpot, “The idea is to give the 2.8 million people of Ecuador that cannot afford traditional banking a way to send and receive payments in a more affordable way.” It will continue to have the US dollar as a currency, but this will be another choice for Ecuadorians.
The popularity of virtual currencies with the tech crowd and millennials, coupled with its convenience and ability to facilitate transactions across borders, makes it particularly appealing to e-commerce companies. But as it becomes more available for online transactions, customers are likely to expect all businesses to accept it as a real form of payment in the coming years.