My background in the tech industry means that I’ve been aware of Bitcoin for a long time and the more I learned about this disruptive technology the more I became interested on a personal basis.
So when I was building the payment gateway for the 8ballbikes website supporting Bitcoin seemed a natural choice, after all I wanted to make 8ball as accessible as possible and that meant offering as many payment mechanisms as I could.
The Bitcoin community is very supportive of merchants that accept Bitcoin and I got a decent amount of publicity because of this, including several mentions on Reddit and even a mention on the Telegraph website. But there’s clearly a lot of education that still needs to be done about this digital crypto-currency.
So just what is Bitcoin? Well some clarification is needed to explain the subtle difference between digital currency and virtual currency. Virtual currency is the moving of state issued money from the realm of the physical – coins and notes – to more portable (and secure) bits and bytes. The stakeholders here all want a part of the value chain, so they can take a slice out of any transaction as it travels from the consumer to the merchant’s bank via a series of networks. But the value of virtual currency is limited in terms on anonymity, given that it is increasingly laden with tracking, control and regulatory overhead.
Digital currency on the other hand is effectively a non-political monetary unit that shares something in common with cash – it has to be completely anonymous. If you ‘lose’ your digital currency, it’s gone, just like dropping a banknote in the street.
Most of the world abandoned the gold standard in the 1970s – it used to be that a government guaranteed the currency in circulation based on its gold reserves – and currency instead became fiat money – that is to say, currency with a value controlled by the government so there is no limit to the amount of money that can be issued. Fiat money is susceptible to the effects of inflation and deflation from a single entity, such as a government.
Conversely, Bitcoin claims to have solved the issue of state interference and anonymity, using a decentralised distribution system and an absolute limit of 21 million Bitcoins. Bitcoin is not backed by anything but belief in the system, and its value comes from its scarcity, like gold. Each coin is divisible by eight decimal places, and the currency’s supporters expect that as some coins are irretrievably lost, the value of the remaining coins will be pushed up slightly. While the decentralised nature means that no one entity can have an impact on inflation of the currency.
The currency has its detractors, which believe that Bitcoin’s lack of an underlying power base puts the currency on thin ice. But for many investors, this is exactly what attracts them.
As I said, I just want to make 8ball accessible and experiment a bit with new technology while I’m at it.
It took a while for my first Bitcoin transactions to come through, largely due to the volatility in the value of Bitcoin. Many investors are treating it like a stock, instead of a currency for buying and selling things. This has kept it in the papers but made it tricky to use. I had one customer back out of a deal when Bitcoin was hovering around the $1,000 mark because he said he would feel bad if the value crashed overnight and I would only be able to withdraw a couple of hundred pounds versus the £600 value of the bike.
It’s a fair point and there was another problem related to this issue. Since the world’s governments have been banging on about Bitcoin being used for all sorts of nefarious activities, the marketplaces have really tightened up their account verification procedures. In short, if they don’t verify you and you sell Bitcoin on their market, your cash is trapped in their bank account until they are satisfied that you are who you claim. My gripe here is that Bitcoin is no more dangerous than cash in this respect but the knock on effect this issue has had, is that it now takes bloody ages (read: months) to get verified on some markets.
So the problem here was that if I made a sale via Bitcoin, I couldn’t sell the coins and get my pounds sterling out. Why do I need to do that? Well I’m a very small business and I’m funding this venture myself. Every bit of stock I have is an investment that can only be unlocked via a sale and then that money needs to be re-invested to make the business grow.
If my money is locked up in a currency I can’t use, then I’m stuck. None of my suppliers accept Bitcoin. Moreover, I want to build and sell bicycles, not spend my time trading Bitcoins. So a new solution was needed.
I recently switched out the Bitcoin payment gateway, which was originally a peer to peer system – the coins just went straight to my wallet, with Bitpay. The beauty of this system is that Bitpay will allow me to accept Bitcoin for the transaction and will convert it immediately into pounds. Then at the end of the day they will deposit that money into my bank account. Perfect.
I still need to see how this system works out but at present it seems like an ideal solution. Even though I’m immediately trading in the Bitcoins for sterling I believe I’m still entering into the spirit of supporting Bitcoin because I’m encouraging people to use it for commerce rather than an investment vehicle. And at the end of the day, that’s really what it was designed for.
EDIT: Turns out I jumped the gun a bit with Bitpay. While it works brilliantly both on the website and on mobile – I did a face to face transaction which we completed using mobile phones only – I didn’t realise the minimum withdrawal fee for GBP is £1,000. Given that I don’t do that many Bitcoin transactions the money might be stuck in Bitpay for an indefinite period if that is the case until I cross the £1,000 threshold. So I’m back to accepting and trading Bitcoin on the market again. Bitpay say the withdrawal fee won’t drop anytime soon.
A couple of journalists did a short news piece on Bitcoin and I give some thoughts. Thanks to Roop Gill and Max Koschyk.