Though the first currency transaction using Bitcoin technology took place in 2009, it has only been the subject of mainstream media headlines during the last two years. As the currency became accepted by more retailers and associated with more news events, Bitcoin came to be a word recognized by the general public and a more familiar way of conducting business transactions.
It would seem that Bitcoin is on the way to becoming a widely accepted new technology. However, it faces some major difficulties to becoming a common currency. It is a digital currency that is not well understood by the general population and is trying to survive in the midst of serious competition in the mobile payments field.
Reports of the first well-known websites to accept “bitcoins” as a new currency for payments began in late 2012, with Dell joining as the largest major retailer to accept bitcoins in July 2014. Along the way, news stories related to Bitcoin acceptance appeared more frequently, bringing the name into broader public recognition. If a small coffee shop or bookstore began to accept bitcoin mobile payments, it had a chance of being covered in the national news as part of a larger story about Bitcoin.
The use of Bitcoin technology has been addressed differently across the globe. The United States government is most accepting of it as a currency. The U.S. Treasury and the European Central Bank classify it as a digital currency, but not legal tender. Other governments officially recognize it as a commodity or an investment. The People’s Bank of China prohibits financial institutions from using bitcoins, and it is illegal to buy real-world goods with virtual currency in China.
Each development in Bitcoin banking policy and mobile payment acceptance had an effect on the value of a bitcoin. For instance, in October 2013 the FBI shut down Silk Road, a website that allowed anonymous illegal drug trading. News stories covering the event closely associated the criminal activity with Bitcoin. Silk Road primarily conducted transactions in bitcoins, since transactions using the currency are anonymous. The value of a bitcoin dropped in the days following the FBI shutdown.
Fluctuation in Public Opinion
Acceptance as a currency has expanded, but the anonymous nature of the bitcoin transactions creates some problems for public opinion and ease of use. Association with anonymous illegal activities such as those conducted by Silk Road is prominent in Bitcoin news coverage. Volatility in the value of one bitcoin can be demonstrated through the fluctuations in price after each major news story. Trading numbers for the company continue to be mostly steady, even as several economists have warned against the currency as an investment. However, trading will have to expand to a larger public group for Bitcoin to survive.
Public Understanding of the Currency
Another hurdle Bitcoin faces in the court of public opinion is clarity. Understanding what bitcoin currency is and the technology that allows the currency to be used is not a simple endeavor. It requires research, investment, and the establishment and use of a virtual wallet to complete transactions. Bitcoin mining, using computing power to earn bitcoins rather than purchasing them, also demands a time investment and learning curve. If the concept of purchasing and spending virtual money is tricky for a consumer to grasp, using personal computing power to solve math equations in order to earn the virtual money is not going to be readily adopted.
This issue creates a kind of stand-off that must be overcome in order for Bitcoin to survive. On one side, web hosts, websites, and online retailers have to put forth effort to expand acceptance of bitcoins. On the other side, consumers need to put forth effort to understand their use. Neither side can fully embrace the transactions until the other does.
The volatility issues are not the only risks for digital currency. It is open to security risks as much as any other online or mobile transaction, but does not carry several of the safeguards. A hacker was able to redirect traffic headed for networks belonging to large hosting companies several times this year. The hacker directed $83,000 worth of earnings from bitcoin mining away from the miner’s connections. The small bursts of activity were not immediately traceable in the mining operations.
Since bitcoin use is unlinked to an account with any identifiers, hackers accessing the currency can spend it without connecting it to their personal information. Traditional wallet theft can be handled by canceling credit and bank cards. However, a bitcoin wallet has no official owner, so there is no way to stop use of any further transactions so customers as well as businesses accepting this form of payment assume a greater risk than with an easily tracked credit card transaction.
Competition in the Mobile Payments Field
Whether or not web hosts expand their services to accept digital currency and ensure services are less vulnerable to hacking, Bitcoin could survive if it became a serious competitor in mobile payment options. This will be an uphill battle as there are already many mobile payment vendors working with retailers to accept credit cards on tablets and smartphones.
- Flint Mobile scans credit cards using the smartphone’s camera
- Square is a popular choice among small businesses that don’t mind paying higher transaction fees in exchange for no monthly fees
- Paypal has expanded into PayPal Here to allow customers to make purchases with their PayPal account balances
- Google Wallet allows both in-store and online purchases
These options all use traditional currency, which is easier to understand for the average consumer and easier to track for business and tax purposes for retailers.
Google Wallet is currently Bitcoin technology’s toughest competitor in the mobile payment field. Google’s virtual wallet has several advantages besides the use of traditional currency. Google is already a household name and well established as a top technology organization. Google also has the advantage of coming into public awareness without criminal activity associations, a weakness for Bitcoin. Google Wallet integrates the “wallet” balance and credit cards, so consumers can use the technology to pay with account money or personal credit cards using one mobile app, though it does not provide the anonymity that bitcoin transactions allow.
Bitcoin technology has a long way to go before it catches up to the ease of traditional currency and more recognizable names such as Google. It will need to make digital currency easier to understand for the general public if the goal is to compete in online and in-store retail transactions. It certainly has the potential to survive as a form of payment, but it may never be a mobile payment leader or even widely used if it cannot solve its issues with volatility, lack of clarity, hosting vulnerabilities, and risk to the consumer and retailer.
Top image ©GL Stock Images
I really never did get the idea of this. I know people want to rebel against the norm but as you pointed out…there is a lack of security…once the mone is gone/hacked…its gone. Thanks for a good article!