Bitcoins have endured a rocky start
There’s something of a revolution happening in the world of online payments. There’s a new currency on the scene and it’s got everybody talking: Bitcoins.
If you’re not aware of them, Bitcoins are one of the world’s first cracks at creating a online currency to be used in the real-world without the interference of a central bank or government. A decentralised digital currency.
The coins can be exchanged over the internet, locally or internationally through peer-to-peer technology therefore without the need for a bank or other financial institution. This gives the currency the huge advantage of not involving third-party transaction fees.
At first, the coins remained well and truly in the realms of developers and computer experts but recently, the word Bitcoin has started to drip into mainstream media and a lot of interest has been generated around its benefits and what it can be used for.
What are Bitcoins and how do you get them?
Bitcoins are created digitally by an open-source computer programme, at a predetermined rate, meaning there are a limited number in existence and they will never exceed 21 million (this limit is expected to be reached by 2140).
Bitcoins are created and passed on through a mining process. This involves using computers to solve difficult mathematical problems. When a computer, or series of computers, solves a problem, Bitcoins are the reward – currently 25 coins to be exact. In order to mine, participants must download the mining software and a Bitcoin wallet to collect the coins in and their computer does the hard work.
Mining has become increasingly difficult for single computers to handle. Only very powerful machines are able to solve these problems alone so a popular way to gain coins is to join a pool of miners and combine computer power. If you don’t mine, you can buy Bitcoins from people who do or sell goods to them in exchange for Bitcoins.
They first appeared in 2008 when a developer calling himself Satoshi Nakamoto created the original Bitcoin protocol – not much is known about him (or the potential group of people) and he is thought to have stopped working on the currency in 2010.
Are Bitcoins the future?
So should ecommerce sites start accepting Bitcoins as a payment method? There are a number of reasons why experts are arguing against their widespread use for now.
The digital currency has had some major fluctuations in value over the past few years which have led to them being tainted and branded is insecure. Just the other day they nose-dived from an all-time high of $265 down to $120. Still a huge increase from its value of £$40 just a few weeks ago. Bitcoins had seen a recent rise in value, attributed to the Cypriot crisis as savers all over Europe are striving to take their money out of banks and put it somewhere ‘safe’. The crash, has been blamed on mass-selling following false reports of a hack.
“As a virtual currency still in its relative infancy, Bitcoin is susceptible to manipulation and external influence, making it a high risk investment,” says Jamie McMullan, Director & Front End Developer at Silverchip.
“At present, the exchange rate fluctuates daily, its price affected by a range of factors including high profile hackings and the mass selling of currency. These fluctuations in the value of Bitcoin make them something of a risky investment at this early stage.”
Add to that the fact that because of their anonymous nature, they are often used for illegal purchases – Silk Road, an online marketplace for the sale of recreational drugs is one of Bitcoin’s most famous advocates.
But having said that, Bitcoins have received some big votes of confidence recently which have seen them hit the headlines for the right reasons.
A man in Canada recently put his house up for sale for Bitcoins – that’s around 5,750 of them. Taylor More said the reason he wanted to sell using the online currency was to get some projects off the ground which required them and which he hoped would “get Bitcoins more mainstream.”
A number of high profile merchants have also started accepting Bitcoins as a payment method such as Reddit, WordPress and Expensify. Silicon Valley Bank even got involved recently by partnering with the largest Bitcoin exchange, Mt.Gox and Coinlab by agreeing to hold Bitcoin deposits for US customers.
This is certainly a stamp of approval for Bitcoins – but is it just a bubble?
“There are currently hundreds of websites accepting Bitcoin, with around 10 different ‘Bitcoin’ wallet websites which can store them digitally,” says McMullan.
“Similar to the stability around the coins’ value, there remains some way to go before we can confidently declare it a reputable currency. However, that by no means dismisses the currency completely, with future potential for it to become far more stable than any other government backed currency. The next five to ten years will be very exciting for the currency.”
McMullan isn’t alone is his opinion. It seems the prevailing argument is that Bitcoins will continue to grow, develop and hopefully stabilize but it will be a few years before they truly penetrate the mainstream.
“I really like the Bitcoin concept and I’m not surprised we are seeing a huge rise in its use,” says Ben Dyer, CEO of ecommerce service provider SellerDeck.
“Geeks like me love it. I left an old PC mining for about six months and had enough Bitcoin to buy a month’s Spotify account! Will it ever take off for the non-nerd elite? Well, maybe, but not in the short term, the barrier is too high.”
