Bitcoins virtually as good as in the bank
MATT Tuzzolo, a software developer who lives in Portland on the US west coast, used to pay his share of a restaurant bill by sending money via PayPal. Now he wields his iPhone to pay his fellow diners — in Bitcoins.
South Africans can hardly imagine such a scenario: few people know what a Bitcoin is, let alone actively trade the virtual currency. But if Americans are setting the trend for how Bitcoins are being traded, Tuzzolo’s example is one that might not be entirely inconceivable in South Africa in a few years time.
“It’s more convenient than PayPal,” said Tuzzolo, who uses the Gliph mobile application to transfer digital money on the go. “It’s as easy as sending a text.”
Bitcoins emerged in 2008, designed by a programmer or group of programmers under the name of Satoshi Nakamoto, whose real identity remains unknown. The currency isn’t regulated by any government or central bank. New Bitcoins can be created only by solving complex problems embedded in the currency, limiting growth.
While Bitcoins could be used for nefarious purposes, they can also be a “legal means of exchange”, and policies are needed to regulate their use, the US Justice Department said last month.
The growth in mobile Bitcoin apps is also being driven by the spreading ubiquity of mobile devices. Global shipments of cellphones and tablets will exceed PC shipments this year by more than six times, according to researcher Gartner Inc.
Gliph, the application that Tuzzolo uses, has more than 25 000 users and was built thanks to $350 000 (R3.67-million) raised from venture capitalists including Tim Draper, who has backed such companies as Skype and Tesla Motors. It’s now one of hundreds of Bitcoin-related programs available from Google and Apple’s app stores.
The mini-boom in Bitcoin software for smartphones is making it easier for consumers to use the virtual currency in place of cash for quick transactions, such as paying for food or services.
The widening appeal of the digital money is also fuelling a rally that has lifted Bitcoins to record levels — surpassing $1 000 apiece last week.
“Bitcoin’s success hinges on how well it’s adopted and configured for mobile,” said Richard Crone, CEO of payment researcher Crone Consulting.
“They are very dependent on mobile actually scaling.”
Since Bitcoins exist as software, apps on wireless devices are an efficient way to transfer money. While physical coins representing Bitcoins are in circulation, they either store software or are used as a proxy for a digital transaction.
While mobile apps are fostering wider use of Bitcoins, other challenges include security, regulation and app-store approvals.
China’s central bank this week barred all financial institutions from handling Bitcoins.
The People’s Bank of China said Bitcoin isn’t a currency with “real meaning” and doesn’t have full legal status. The public is free to participate in internet transactions, provided they take on the risk themselves
This was a blow to the virtual currency, which dropped more than 20% on the Bitstamp online exchange for a time, before bouncing back.
Virtual currencies and mobile
It’s a bubble. You have to really stretch to infer the intrinsic value
payments are two areas regulators will scrutinise for potential legal violations. The US Consumer Financial Protection Bureau is monitoring the growing mobile-payments industry as part of its brief to police retail financial markets.
Former Federal Reserve chairman Alan Greenspan said this week that Bitcoin prices were unsustainably high.
“It’s a bubble,” Greenspan said. “You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is.”
Bitcoin’s shift to mobile is happening even though Apple has rejected many Bitcoin payment apps, especially those that exchange Bitcoins for dollars and other currencies.
Rejected developers were instead flocking to Androidbased devices, developer Pavel Nikitenko said.
Apple and Google prohibit apps involved in illegal activities, according to their software-developer policies. — Bloomberg