The time has come for me to eat my words regarding bitcoins. In earlier posts I voiced my concerns and reservations about bitcoins, but during the past several months, bitcoins have made significant inroads with increased media mentions and some new developments that can give users increased security, as I shall explain.
First, I’d like to provide a primer on bitcoins for the uninitiated. Bitcoins first appeared in 2009, as an online payment system and a currency that is purely digital in nature. It has no physical form, and no government’s central bank regulates it nor sets its value. The value of bitcoins is determined by the laws of supply and demand, and the exchange rate values into dollars or Euros are determined by market demand between individuals and specialized bitcoin exchange bureaus that agree to trade in the currency.
Bitcoin transactions are highly secure and far cheaper than online payment transactions made via PayPal, Google Wallet, credit cards, debit cards and international bank transfers. This is one reason the “establishment” turns their nose up at bitcoins. Anything that under-cuts the fees of the established systems and undermines the fat cats at the big banks and their bloated salaries has to be a bad thing. But this is not necessarily the truth as we learn by digging deeper into the workings of bitcoins.
At present, holders of bitcoins can exchange bitcoin payments between each other by sending and receiving bitcoin payments using their bitcoin digital wallets, which are secured by encryption. There are many sources that provide free bitcoin digital wallets. When a bitcoin payment is sent from one person to another, the payment transfer is also validated with cryptography and a public domain bitcoin ledger updates all bitcoin wallet balances without the need to connect wallets to a person’s real-life identity. This all happens without banks imposing fees.
The value of bitcoins can swing dramatically. In the past few weeks, the value of bitcoins has increased from approximately $200 per bitcoin to over $300 per bitcoin. And the value can decrease by the same amount in a matter of days or even hours. In bitcoin’s short lifespan it has proven to be a very volatile currency, and fortunes can be made and lost very quickly in trading the currency.
Anyone is welcome to own bitcoins. You can earn bitcoins by mining them using the computing power of your computer (to help validate bitcoin transactions in the public ledger). And you can freely exchange bitcoins using digital wallets, with almost no fees. An increasing number of businesses are now accepting bitcoins as a method of payment and their prevalence is increasing every day. In the past year the daily number of bitcoin transactions increased from 35,000 to 55,000, so the global bitcoin market is still tiny compared to main-stream payment methods. My belief is that this will change quite dramatically in the coming months and years.
Given that bitcoins are removed from the grasp of government and banks, and wallet payments between bitcoin holders are not tied to a person’s true identity, their anonymity make the digital currency a potential platform for criminal transactions. This is a true fact. And a valid concern of officialdom.
Uncle Sam has mandated that US based online payment systems are not to facilitate online payments using bitcoins, and once such US company was recently stopped from its trade in the currency. As such, it is unlikely that PayPal and Google Wallet and the other large US-based payment giants will enter this space any time soon.
A gap in the market has started to close in that it is no longer only the free digital wallets which can be used to facilitate bitcoin payments. Vancouver-based online payment system CashSender.com has recently added bitcoin merchant services to their offerings, and they are one of the first such online payment systems to do so.
This means CashSender users can send and receive bitcoin payments within the safety of the CashSender system, whereby user’s payments are in fact tied to a person’s real identity. CashSender is a FINTRAC registered money remitter in Canada, so users can rest assured that the company’s operations are in full government compliance and user’s rights are similarly protected. Thus, a new added level of protection and legitimacy is provided by sending and receiving bitcoin payments within an established and properly registered money transmission system like CashSender, which is based in a safe, secure and trusted banking regime like Canada.
Digital bitcoin wallets do not typically provide merchant services. Thus, they simply facilitate person-to-person bitcoin payments. They do not provide bitcoin payment buttons, buynow and paynow buttons to place on your website, or a bitcoin powered IPN to facilitate complicated website payments in bitcoins. And this is exactly where CashSender makes the jump. CashSender provides a whole host of online merchant tools that allow website owners to process website payments in bitcoins using a familiar merchant tools.
With CashSender’s bitcoin IPN service, website owners can process account payments in bitcoins, as well as process payments in bitcoins using the CashSender shopping cart. or an airline could use the CashSender IPN to process payment for airline tickets and travel in bitcoins. Up until now, this has been the missing link between bitcoins and website merchants.
CashSender provides bitcoin payment services to people living just about everywhere, except the USA, as CashSender is blocked from serving the US market due to that country’s steep costs of attaining money remitter licences in all 50 States (which is a whole story in its own right).
In conclusion, bitcoins are increasing in popularity, and their acceptance and market penetration will only increase as more legitimate companies and payment services embrace their acceptance in the coming months. The opportunity that exists now for many online businesses, is the rush to be the first in one’s industry to accepting bitcoins for online sales. Which brings bragging rights. But this situation won’t last forever. I believe within a few years, bitcoins will spawn other digital currencies and they will be much more prevalently accepted in the world of online merchant payment transactions.
Disclosure: The author is the founder of CashSender.