With Bitcoin breeching the US$5,000 per coin this week it’s time to spend (get it? ‘Spend’) some time here and again dive into this new world of cryptocurrencies. In this article, I’m going to focus on the real world application of using Bitcoin but you should also check out my previous articles here:
In the video Morgan sets out to only use Bitcoin for a week. This means to use it for every currency transaction for a whole week. As you’ll see, the larger the organisation he deals with, the less likely they are to accept Bitcoin. However, he does find plenty of people now accepting it and he even converts one establishment over to using it.
The reality is that trying to use Bitcoin for every transaction today is a bit like trying to use Japanese Yen here in Australia. The majority of business won’t accept it. Some won’t appreciate that Japanese Yen has value and can be exchanged for good ol’ Aussie dollars. However, the additional friction of accepting a foreign currency and then taking it somewhere to have it converted to usable local currency is enough for most businesses to reject it as an acceptable method of payment.
So it is with Bitcoin. It is simply something that is foreign to most businesses. However, at some stage so was the Internet and look how many businesses have not only adopted that but also depend on it daily for their business?
I think the similarity between Bitcoin (really the block chain technology it is built on) and the Internet is something everyone should pay attention too. We all forget how the Internet started as a bunch of geeks trying to connect computers together so they could send electronic messages to each other as well as play games. Now look what they started!
One of the upgrades I recently was able to embrace was high speed Internet here in Australia thanks to an NBN connection. The ease of which that took place compared to my very first Internet connection experience could not be starker. Today, I simply order a new connection, someone comes and wires everything up, send me a router that I simply plug in. Within minutes my Xbox is connected to the Internet and I’m playing Call of Duty II with my nine year old friends (who are all way better than me I will also add but I do have a deeper voice which makes me stand out in the crowd).
Back in the day, the amount of tech and ‘futzing’ around I’d have to do to get access to Internet was mind blowing. I had to effectively build my own TCP/IP stack manually and once I did manage to connect downloading a one MB screen saver took hours. Luckily, I’m a qualified Electrical Engineer so I eventually worked it out thanks to my slide rule, but heaven help a ‘normal’ user back the. O, how the world has changed and many forget this.
I believe we can expect the same trajectory with Bitcoin (and block chain). Many equate the world of Bitcoin today to the Internet of the early 1990’s. Based on that, what Bitcoin could grow to is scary. This is really the model you should keep in mind when it comes to the potential of Bitcoin. Many refer to it as the Internet of money.
But back to practical dilemmas for today and trying to use Bitcoin in the real world. In short you are not going to be able to pay your electricity bill using Bitcoin at the moment but there is a good chance you can pay for stuff on the Internet with Bitcoin. This process illustrates one of the major advantages of Bitcoin.
If I want to buy something I see on a foreign web site I have to ensure that they’ll firstly ship to me on this little island called Australia and secondly, I have to ensure that they’ll accept my payment. Today that payment mean using a credit card. That is a financial instrument provided to me by a bank. That means any payments I make must go through them to be transacted. That in turn means I will pay a fee for that privilege. For international transactions, that fee can be quite substantial. The other issue with such a fee is that there is a minimum charge. Thus, if I only want to purchase something for US$1 it may end up costing me as much as A$25 because of all the bank fees and minimums.
I also see the same kind of overheads if I use a non banking business to transfer money like PayPal. In fact I see it more when I accept payment from people, especially when it comes from overseas. That is a real disincentive to lose as much as 20% of a transaction just in the transfer. Who should pay that fee? As a seller do you jack up your prices to cover these fees or do you absorb that as part of staying competitive? How many local establishments do you see that now warn you of the fact you’ll need to pay additional fees if you use a credit card. Is that an incentive or disincentive? For me, a major disincentive in so many way and leads me to ask why is it so expensive to transact digitally?
Now let’s image the situation of payment using Bitcoin. If you liked this article (and I hope you do) and wanted to say ‘job well done’ by donating a dollar, all you would do is take out your smart phone, open your Bitcoin wallet app (where you Bitcoins are stored digitally). You’d then scan in the QR code on the right or below:
You’d then enter the value of $1 and send. In a short period of time I’d get notification in my Bitcoin wallet that I’d received funds. That’s it. Transaction done.
Not only is that transaction easier and cheaper but it is also faster. if you have every bought or sent money electronically why does it take a minimum of 2 days to process? For all those banking fees, why doesn’t it happen immediately? This is why Bitcoin and crypto currencies are the future of money. They remove friction from the system. They remove intermediateness who charge large fees and make small micros payments uneconomic. All of that stifles economic activity and growth. All of that creates a bottleneck that a few can use for their own benefit. All of that makes it much harder for those in non first world countries to transact and build a business.
So Bitcoin today is like the Internet 25 years ago. Few are using it and it is somewhat technical to get started BUT it’s potential is so huge that it is going to change the world in my opinion, just like what we have seen with the Internet. That means there is an opportunity to ride that comet at the early stages now. Bitcoin may look expensive now but indications are that it will only continue to grow. That means, if you are a speculator, there is potentially money to be made trading the rising value. However, if you are a business, it means that there is now a new payment system on offer that has dramatic ways of improving how payment to and from you work. In my books, if you are running any sort of business you need to be looking at Bitcoin. That’s why I’m doing it.
The easiest way to learn about Bitcoin is to start using it. I’ll cover that in detail in an upcoming article but don’t sit on the fence, just get started. That’s why I set myself up and why I have Bitcoin now as a payment method. Sure, I’d love the donation but it’s more to give people somewhere they can experiment with micro payments to better understand how it works. I’m on this journey as well and the more people learn and share the more powerful we’ll be. Look how our shared communication on the Internet have changed the world, that is what cryptocurrencies like Bitcoin are also going to do for our payment methods.
Knowledge is power and the revolution in payments is gathering momentum. Now is the time to get on board to take maximum advantage of that opportunity. Are you ready to join me?