With over 8 million users worldwide and 94,000 transactions per day, Bitcoin has the potential to create disruption in the digital world of payments.
Since its debut in 2009, the price of Bitcoin has gone through various cycles of appreciation and depreciation. The value of one Bitcoin rose from about $0.30 to $266 in April 2013, peaking at an all-time high of $1,242 in November of the same year, before dropping to $224, its lowest level in two years.
Bitcoin is fast evolving in terms of merchant adoption. As at the end of Q3 2014, over 75,000 merchants had started accepting Bitcoins globally, which is a significant 19 per cent quarterly increase. Many large business houses, including Microsoft, Dell, PayPal, Dish Network, Expedia, NewEgg, and TigerDirect, have adopted it. In fact, Dell is offers a 10 per cent discount, if payment is made in Bitcoins.
Put in perspective, Bitcoin helps businesses save on transaction cost and settlement time, and mitigates risks related to foreign exchange. Merchants must look to leverage this digital payment platform.
India, however, has been slow in adopting this crypto currency system. The currency is highly volatile and India’s risk-averse culture is not helping give proper a perspective to people who have always preferred more stable and legally secure modes of transaction. In addition, Bitcoin’s inability to reverse or recall transactions presents a big physiological hurdle. Moreover, the question of educating a first-time account-holder about virtual currency always looms large.
On the other hand, other electronic payments initiatives like RTGS, NEFT, IMPS, and mobile wallets are well established, secured and regulated, which relegates Bitcoin to a miniscule share of the market. In 2013-14, 63 per cent of the total number and 35 per cent of the total value of retail transactions was electronic.
However, Bitcoin is expected to find better acceptance, with a push for cashless transactions from the RBI governor, Raghuram Rajan. The future looks upbeat, with certain positive signs like the establishment of India’s first Bitcoin exchange, BTCXIndia, and Unocoin — which provides Bitcoin trading, storage and merchant processing services. HighKart.com is the first e-commerce website to accept Bitcoin payment for its products.
Regulators’ conundrumThere are multiple factors regulators must worry about, one of the most important being Bitcoin’s rising market cap which reached $10 billion in December 2014 and continues to rise, thereby appearing as a competition to fiat currency. Then there are things like anonymity and instant cross border payments, which have led to illicit activities like money-laundering. However, like any disruption that marks a paradigm shift, there are many other aspects of Bitcoin that need to be further understood.
In India, lack of clarity from regulatory bodies is one of the prime reasons for delay in acceptance. Buysellbitco.in, an online portal that facilitated Bitcoin transactions, was raided by the Enforcement Directorate in 2013. Preliminary investigations found it to be in violation of the foreign exchange laws. After an RBI press release, traders and customers have become cautious and are avoiding the use of Bitcoin until it is legalised.
Looking ahead, Bitcoin doesn’t appear to limit itself as just a digital currency. Developments are under way to introduce it as a medium of issuing assets such as shares and bonds, a concept that goes by the term ‘coloured coins’. Moreover, technological advances are running in parallel to evolve the usage of Bitcoin. Recently, Bitpay, the largest global Bitcoin payment service provider, launched Bitpay Checkout to enable near field communication (NFC)-based Bitcoin payments.
Now that crypto currencies have started to mature, there are signs of stability. By the end of Q1 2015, 1,10,000 merchants will start accepting Bitcoin. Merchants can take further advantage by instantly converting Bitcoin payments into local currency to mitigate risk of rate fluctuations.
Regulatory bodies must take an active role in running educational initiatives and funding research programmes. Users must understand the risk but should not be left behind because, from a single Bitcoin ATM at coffee shop in Canada in 2013 to 260 ATMs worldwide and 8m Bitcoin wallet downloads, Bitcoin is here to stay.
The writer is the head of banking and financial services, Nihilent