Just months ago, it seemed that Bitcoin was about to become the next big online revolution. The digital currency, which used to be something only for those with a high level of technical know-how, was starting to catch the attention of those online and off. But as fast as you can say crypto-currency, Bitcoin went from looking like a new frontier in the way we look at money to some kind of scam.
For those who still aren’t clear on exactly what Bitcoin is, it can best be explained as a currency that exists only online. With no physical object such as coins or bills to back it, Bitcoin value is determined entirely by market demand – that is, how much other people are willing to trade for it.
Bitcoin users see their balance in a digital wallet which is verified by other users through a process called mining. The amounts in the wallets of Bitcoin users are available in a public ledger. The system relies a lot on honesty of its users, a fact that brought questions of security and criminal activities from the start.
When the Japanese Bitcoin exchange Mt. Gox closed down in February after the equivalent of around $500 million in Bitcoin went missing, it seemed some of these concerns were affirmed. Since then, there have been other stories of failures of the digital currency including the recent news that Canadian Bitcoins, a Bitcoin exchange with headquarters in Ottawa, was robbed of more than $100,000 worth of the cyber currency. The exchange was hacked in a ridiculously simple scheme which involved someone calling tech support and pretending to be the owner of the exchange.
These events have surely been thrown in the faces of the small group of people in Ottawa that has been trying to normalize the digital currency.
In January, Ottawa became home to one of the first Bitcoin ATMs in the world. The Standard Tavern on Elgin Street now accepts Bitcoin as a method of payment and the idea of accepting Bitcoin has been proposed to other businesses. A panel discussion has been organized for people in Ottawa interested in Bitcoin to gather and talk about the currency’s future. The group may still be small, but it’s clear that some people in this city think we should be bringing Bitcoin into the real world.
Even with the issues surrounding Bitcoin, a movement to normalize crypto-currency in Ottawa isn’t a wasted effort. Bitcoin is currently in flux, but it is still a smart move for residents of this city to start becoming comfortable with the concept of digital currency.
It must be taken into consideration that Bitcoin is just one company out there in a growing world of digital payment systems and crypto-currencies. Today, there is $9.5-billion worth of crypto-currencies in circulation, with around $7 billion attributed to Bitcoin. We have seen almost everything go online – shopping, dating, entertainment and communication. It seems only natural that money would follow.
These kinds of digital payment systems offer several benefits unavailable with currency controlled by central banks. For starters, these systems are faster as they do not have holding periods. A big draw is that they cost less due to lower or no fees, which is especially useful for international transactions. Also, crypto-currencies offer the possibility to profit from arbitrage — that is, capitalizing on the price difference between two or more markets.
Virtual currency has potential to be faster, cheaper and create more profit than regular currencies. Bitcoin may still be to crypto-currencies what Napster was to iTunes, but it doesn’t mean that the concept is an idea that is about to fade out anytime soon.
Companies and cities that capitalize early on Bitcoin are likely to see benefits in the near future rather than waste time catching up when these systems become more mainstream.