The rise and rise of virtual currency Bitcoin
Published 06/02/2014 | 02:30
Are 'virtual' currencies like Bitcoin just a fad for geeks? If so, somebody forgot to tell Dublin city trader Alan Donohoe, below, who runs a mobile phone shop, GSM Solutions, in Abbey Street.
"We started accepting Bitcoin as part of our normal business last May," said Mr Donohoe, who also runs an online business. "Now we take it the same way as we would other types of payments."
GSM Solutions sells phones, accessories and electronics. Mr Donohoe thinks that it is only a matter of time before Bitcoin becomes accepted as a way of paying for things.
"I'd have to say that awareness of Bitcoin is very low among most ordinary people," he said. "But because many of our customers buy tech-related products, lots of them are fairly well up on it. I'd compare Bitcoin with the rise of the internet. Not many people use it at first, but it could become huge."
Mr Donohoe is not alone. A small handful of Irish businesses now accept Bitcoin as a means of payment for goods and services. They include Wexford CCTV firms (Visiconnex) and even B&B guest houses in Offaly (The Ring Farmhouse, Birr).
Abroad, the situation is more advanced. Giant retailers Overstocked.com and TigerDirect.com accept Bitcoin for the thousands of everyday products they sell, including jewellery, electronics, health products and home furnishings.
For the uninitiated, Bitcoin is a 'virtual' or 'crypto' currency that was invented just over four years ago. Units of currency, called 'Bitcoins' are secure pieces of code that can be bought, sold or used to buy other things. Although anonymous, every transaction is recorded in a virtual ledger that is downloaded by every Bitcoin user. Supply of the currency is limited by a pre-determined computer formula, so units cannot be copied or faked. There is also no single individual controller.
What started off as a project for web enthusiasts is now becoming a serious business. In Canada, the US and Australia, Bitcoin ATM machines are beginning to appear. Companies such as BitPay and WagePoint allow companies to pay employees in Bitcoin. And last month, America's biggest bank, Wells Fargo, assembled senior banking figures and US government officials to plan how the financial and regulatory sectors should deal with the currency. Even the former US Federal Reserve chairman, Ben Bernanke, has acknowledged virtual currencies as growing in stature.
However, the virtual currency is attracting caution, too. China has banned the use of Bitcoin. In Ireland, The Revenue Commissioners have warned traders that it may start to include Bitcoin traders in its audits, as the crypto-currency is not a way to avoid paying tax on transactions. The Central Bank has also warned savers that Bitcoin is unregulated and, as such, does not enjoy protections under deposit guarantee schemes in the same way that bank depositors enjoy.
Still, interest in – and use of – the crypto-currency is continuing to grow. One of the advantages to Bitcoin, say proponents, is its anti-fraud properties.
"One of the problems with current systems is security and fraud," said Jeremy Allaire, founder and chief executive of Circle Internet Financial, a Dublin-based company set up to help firms trade with Bitcoin. "If you think about it, there are lots of people and organisations who you need to share your sensitive financial information with. Sometimes the system fails and banks have to reimburse customers. That's fine, but it's really an admission of the system's failures. Trading in Bitcoin is a much more secure way of doing it, when established."
Circle recently raised more than €7m in funding to help it expand its workforce in Dublin and Boston. "I expect more to accept the currency in time," said Mr Allaire.
The value of Bitcoins has rocketed over the last 12 months, from a level of below €10 to the current price of around €700. This is due partly to some investors turning to the crypto-currency as a safe-haven against volatility in Cyprus and partly to the attraction of Bitcoin as a perceived fraud-free, tax-free way of trading.
However, some of the growth in the virtual currency is also attributed to black market trading in illegal commodities such as drugs and weapons. But the legal usage is getting much more attention these days.
"At the moment, we're running a promotion where you get two for one if you pay in Bitcoin," said GSM's Alan Donohoe. "We really believe in this."
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