Online payments- the segment is booming, something PayPal knows all about.
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PayPal describe their service
as “Your new wallet”, “Easy to
pay for everyday things”
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Paypal’s recent launches of mobile payments in brick-and-mortar stores across Australia has seen a great media buzz, receiving coverage by Australian traditional news giants The Guardian and Sydney Morning Herald, as well as online tech news & blogs like CNET and TechCrunch.
Paypal dub the new service as “your new wallet”, a combination of store discovery, pre-order and payment in one convenient app, already linked to your existing familiar debit or credit card, and all facilitated and backed by PayPal. Another middle-man some might say- a win for convenience and ease-of-use for the younger generations, but not a paradigm shift.
Enter Bitcoin
In the battle for online payments, “Bitcoin” is another option increasingly appearing online and in-store. Noteworthy for its grass-roots style adoption and its innovative & potentially disruptive technology, Bitcoin has recently made global headlines for its adoption by well-known technology brand Dell.
Bitcoin is a decentralised online currency- meaning no single individual or company controls their transfer; instead, a list of all transactions ever made are kept in a peer-to-peer system, secured by complex mathematical equations (cryptography), and tracked by tens-of-thousands of computers across the globe.
An example? In a central system such as the one PayPal uses: you submit an order, PayPal pays the business owner, and the banks pay PayPal, completing the transaction.
Bitcoin works a little differently. To make a payment to a business or individual, you submit an order to the peer to peer Bitcoin network. From there, the vast network is able to check (using the complete log of previous transactions) that you actually have the required funds. When enough computers on the network agree, the transaction is deemed to be confirmed.
An example? In a central system such as the one PayPal uses: you submit an order, PayPal pays the business owner, and the banks pay PayPal, completing the transaction.
Bitcoin works a little differently. To make a payment to a business or individual, you submit an order to the peer to peer Bitcoin network. From there, the vast network is able to check (using the complete log of previous transactions) that you actually have the required funds. When enough computers on the network agree, the transaction is deemed to be confirmed.
Bitcoin supporters are very careful to spell out the distinction between a “virtual” currency, and Bitcoin as a digital currency. Bitcoin is, if you follow, the new digital cash. Cash that you can spend online directly, not through your bank or a payment processor.
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The Bitcoin logo / mark
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Bitcoin acceptance
For those championing the use of Bitcoin over local fiat currency (currency which derives its value from government regulation or law, such as the Australian Dollar), the acceptance of Bitcoin is is only half the battle.
Of the dozen or so businesses currently accepting Bitcoin in and around the Melbourne Central Business District, few keep any significant portion of customer spend in Bitcoin after the transaction is completed.
Of the dozen or so businesses currently accepting Bitcoin in and around the Melbourne Central Business District, few keep any significant portion of customer spend in Bitcoin after the transaction is completed.
Chances are high that if you are a cafe owner, none of your food, coffee, insurance providers or rental agencies will be happy to accept your payments in Bitcoin. And unless you have some staff who will accept payment this way, this means you need to convert your Bitcoin to Australian Dollars.
Australian-based Bitcoin processor CoinJar provides one such platform for accepting Bitcoin payment- one of their big selling points is currency lock-in; meaning that if the .006 Bitcoin (6 mBTC) the customer pays for your AUD ~$3 coffee is suddenly only worth AUD $0.20 tomorrow, you still get what the bitcoin was worth when the customer paid.
The hope is that eventually more suppliers will begin to accept Bitcoin (whether directly, or cashed out to local currency), which will encourage businesses to increase the percentage of Bitcoin takings that stay as Bitcoin.
The hope is that eventually more suppliers will begin to accept Bitcoin (whether directly, or cashed out to local currency), which will encourage businesses to increase the percentage of Bitcoin takings that stay as Bitcoin.
Struggles of an emerging currency
Bitcoin faces a struggle on several fronts. The less uncertainty and fewer people using the currency, the more difficult it becomes for it to be stable and consistent. Although it has currently settled between $500-$600AUD, the currency has recently seen mass variations due to exchange collapses and operators errors.
Uncertainty over Tax is another concern. The Australian Tax Office is still yet to release full guidelines explaining how it will begin to tax Bitcoin; there is no certainty over whether it will be taxed as money or property, at what amount and in which circumstances. The ATO has released basic information on the minimum reporting required for Bitcoin transactions, to allow businesses to account for this at a later date.
Bitcoin also needs stores and outlets to accept the currency- previous champion The Little Mule Cafe in Melbourne’s CBD, stopped accepting Bitcoin after a change of ownership during June/July of this year. Stores that don’t yet share the underlying philosophy, and see low numbers of payments using the currency, will see little reason for the administrative overhead of keeping the option in place.
Bitcoin also needs stores and outlets to accept the currency- previous champion The Little Mule Cafe in Melbourne’s CBD, stopped accepting Bitcoin after a change of ownership during June/July of this year. Stores that don’t yet share the underlying philosophy, and see low numbers of payments using the currency, will see little reason for the administrative overhead of keeping the option in place.
The Bottom Line
Is Bitcoin viable? Perhaps not yet, from a customer acceptance perspective. The technology is interesting (and not only in the form of Bitcoin; the idea of a peer to peer transaction system has great applications for many other industries, if it can be proven to work here).
But it will be an interesting day when I can get in to work, buy a coffee, lunch, some Ink for my printer, pay my bills and make some phone calls all with Bitcoin. If nothing else, it’ll be a bit of fun. At the most? The start of a brave new world.
But it will be an interesting day when I can get in to work, buy a coffee, lunch, some Ink for my printer, pay my bills and make some phone calls all with Bitcoin. If nothing else, it’ll be a bit of fun. At the most? The start of a brave new world.
