Current State of Bitcoin
Digital currency, once a pioneering industry, is now saturated with a multitude of offerings from the notorious Bitcoin, to newcomers like Zcash. However, when Bitcoin reached its peak price point in late 2013, its supremacy and growing legitimacy brought optimism to the long-term prospects of digital currency. Bitcoin now (16/2/16) sits at €360 and is down 18% in the past two months. A catalyst of this downturn is the recent, impassioned blog post of Mike Hearn, one of the most notable leaders of the Bitcoin project. Mr. Hearn announced that he would be departing Bitcoin while also concluding that the project “has failed” and criticized the community. The drop in value following this post as well as the accompanying New York Times article points to the importance of public perception.
International bodies have also taken to critiquing the operations of Bitcoin. IMF chief, Christine Lagarde, recently stated that “the banking industry has quite a few good days ahead of it,” as long as Bitcoin retains the anonymity of its customers. Meanwhile US Federal Reserve chairwoman Janet Yellen has broached the concept of regulating digital currency while also insisting that agencies must be careful not to “stifle innovation”.
What exactly is Bitcoin?
Bitcoin, for those who are unaware, is a form of digital currency that is “mined” by high-performance computers that solve increasingly complicated algorithms to obtain the finite (21 million) electronic supply of the currency. No country or government controls it and the coins are being accepted as a payment by a growing ecosystem of businesses. Instead, the encryption of the coins using the mathematic algorithms (placing it in a group of other “crypto-currencies) regulates the supply by ensuring a manageable stream of new coins in the market. The currency has garnered praise from the likes of Bill Gates and former Google CEO, Eric Schmidt.
Advantages and Disadvantages to Commercial Use
The commercial use of Bitcoin draws from the advantageous characteristics of variable transaction fees, fast international payments, and no need to process sensitive customer information like credit card numbers. The transactions of Bitcoin are anonymous in the sense that users can hold multiple accounts or wallets that are not linked to names, addresses, etc. However, every transaction that occurs using Bitcoin is stored in the blockchain, basically a giant ledger for the currency (you can view recent Bitcoin transactions on this site). Due to the absence of a financial intermediary the technology is purported to be faster and cheaper than traditional currency exchange with no set bank fees.
One of the critiques of the system that have been cited by many, including Mr. Hearn, is that Bitcoin may be unable to handle a large quantity of transactions as the user base grows. An attack on the Bitcoin system in July of 2015 highlighted the difficulties programmers have in dealing with increasingly complex transactions. Congested results and longer wait times to confirm transactions are a notable hindrance to commercial use.
Ireland in the Bitcoin Marketplace
As the fastest-growing economy in the European Union, Ireland has the opportunity to embrace digital currency and many companies already have. A Dublin digital currency start-up, Circle, has been backed by $76 million in venture capital investment. Circle is the perfect example of a local business that has leveraged this pioneering technology to assist consumers through their mobile application that streamlines sending & receiving Bitcoin.
However, apprehension is also understandable when considering a recent case of two men jailed for possessing drugs worth €143,000 that they were trading globally using Bitcoin as payment. The security threat of such an anonymous currency will certainly be an issue for national police forces such as the Garda.
The Bitcoin Foundation of Ireland has expressed their view of the adoption of the currency when one of their founders, Alan Donohoe, said “It’s like any new technology: it’s going to take a few years to take off”. Ireland already has a Bitcoin ATM and daily transactions in the country are increasing steadily.
Digital currency and Bitcoin specifically are in an important stage of their history as critics have a chance to analyse seven years of progress. Controversy has been a constant companion for Bitcoin in this time whether due to hacking, global drug transactions, or tumultuous leadership. Seemingly every day there is a new crypto-currency that promises faster, safer, and more reliable transactions. However, even with the competition Bitcoin still remains a steady leader with a market capitalization billions of dollars more than the closest crypto-currency.
Only time will tell if Bitcoin is able to persist in the long-term, but developments in Ireland alone show that business prospects exist in digital currency. It does not appear that the value of Bitcoin will stop experiencing massive rises and falls in the near future and its inherent risk to businesses will continue. However, consumer education on the currency through research resources such as Coindesk can help any business owner make their determination on digital currency.
If Bitcoin can prove to businesses that they can weather the controversies and handle high quantities of transactions in a timely manner then commercial adoption will almost certainly continue to grow.
International Trade Associate
15 February 2016