To Bitcoin or not to Bitcoin?
The question on everybody’s mind is – should I allow Bitcoin as a payment form on my website? This brainchild of the pseudonymous Satoshi Namakamoto has soared from zero to hero in a very short time period. Worth barely a cent in the first year of its career (2009-2010), finally reaching dollar value in 2011, nobody saw any potential in this wildly fluctuating cryptocurrency. That is, until the bubble grew to enormous sizes in 2013, at one point reaching over $1200. But what does that mean for the future of Bitcoin? That’s what we’re going to discuss briefly. To start you off, some vocabulary is useful in case you’re new to Bitcoin.
Rags to riches?
You chuckled at the guy bought a 100 BTC in 2010, but now that guy has about $86,358 in his wallet. Now, most of us wouldn’t know what to do with that $80,000 because you can’t walk into an Apple store and say “give me a MacBook and I’ll pay you 8.1152834 Bitcoins” (Mainly because Apple sees BTC as a problem so they just refuse to accept them), and you certainly can’t write an angry e-mail to your favorite online game store that they don’t accept Bitcoins. Why is that? Because BTC is not “real money” to most of us. This decentralized, free of any government, gold backing standard issued by formal banks, and taxes from the IRS currency isn’t what we’re used to and therefore we tend to brush it off as fake. Its lack of an official status and backing by ‘real’ organizations makes it seem more like a Ponzi scheme than something we can plunge into.
The advantages
Well, because of the very few places that actually do offer Bitcoin as a payment method, once they do – they have exponential growth in customers, ergo greater income. In January 2014 Overstock.com became the first major retailer to accept Bitcoins. In its debut day it made $130,000, noted 840 new orders and this is all from new customers, and by new I do mean Bitcoiners.
Processing fees are almost nonexistent, unless you are drawing from many bitcoin addresses, and even then they don’t actually concern you. How is that possible? Well, neither the seller nor the buyer actually have to pay out of their wallet because the system pays the miners. Say what? That’s right, a transaction is added to a block chain where within about 10 minutes a cryptographic puzzle is solved by ‘miners’, well, their computers. This whole mining process allows your transaction to be verified as real, and allows the miners to get 25 BTC for their troubles.
The disadvantages
Someone who doesn’t trust the government, sees Bitcoins decentralized and tax free idea as a marvel. However, I happen to be a sceptic who sees Bitcoins as the evil man hiding behind a too good to be true idea. Created by an unidentified person from whom we last heard in April 2011, regulated by no one, where its code is changed by everyone, and it exists as a perfect anonymity device.
Popularity may just be the downfall of Bitcoin. Banks are now getting interested, IRS seeks to regulate whether Bitcoin is a fiat currency (actual money like dollars, yens, or euros) or a capital asset (basically, a stock), with more people using Bitcoins and mining being used more frequently it’s essentially going to be pointless to give miners bitcoins for their work, therefore fees may eventually be applied. Now to top all this off there is actually a limit on mined Bitcoins. At the current rate 75% of the BTC’s will be mined by 2017, and by 2140 all of the them will be used up.
Shutting down Silk Road (an international online black market which brought on $3.6 mil. (26,000 BTC) from seized accounts), Increasing information about BTC in the media, and known retailers like Overstock accepting Bitcoins has caused people to buying more and more Bitcoins in hopes of getting on this wealth and tax free wagon. However, this may create an economic bubble.
Is Bitcoin the future or just a bubble?
As much as we would want to have the answer – no one knows. This may just be a fad to be burst like the tulipmania, or it might be next greatest idea like the Internet. In Europe alone only 9% of transactions take place with cash, so technically we might need Bitcoin as the next step to online transactons; a revolutionary system which will be the seed of a new way of paying one day, where the middle man no longer exists. But then again this could be a very unstable stock that can crash any minute. In truth it’s safer to watch from the sidelines than invest right now (unless you’re a true economic risk taker, then more power to ya!).
Making Bitcoins available in your store is as risky as it gets. Fluctuating rates mean that you might have $10,000 at the time of transaction, and by the time you convert those Bitcoins into traditional money you’re left with $1,500. The fluctuations caused by sudden excitement and inflow of Bitcoin buyers (which in the long run makes BTC worthless once everyone has them and someone decides not to pay a lot for them, let’s remember those Dutch tulips), the possibility of Governments interfering will eventually either scare people away or make Bitcoins illegal.
Summing up
Conclusion? Don’t write them off, but don’t invest all your resources in making sure they’re available in your web store. Bitcoins are worth keeping a close eye on, within a year or two, when the celebrity status dies down, it will be clear whether the bubble burst or turned into a great new payment method. Nevertheless 2013 most definitely was the year of the Bitcoin, now it’s just time to see what Bitcoin gained from that.
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