It’s a brave new world when it comes to money. A few years ago the idea of using digital currency — a type of currency that is electronically created and stored — to pay for something as mundane as a sandwich would have been laughed at. Times have changed.
Today you can purchase just about anything with an ever-growing list of digital currencies. In Victoria, you can grab a bite to eat at Cabin 12, buy a shirt at Hemp and Company or even support the SPCA using bitcoins, one of the most popular digital currencies. Bitcoin now has a handful of ATMs across Canada, including in Victoria and Nanaimo.
Just like paper money, digital currencies can be used to purchase goods or services, but unlike paper money there is nothing tangible — it’s all transferred electronically.
To create digital currency, individuals or groups called miners solve a problem or complete a task online and then receive funds in return. These miners can trade their digital currencies for another form of currency or use them to make a purchase, putting the coins in circulation. There are no central banks or financial regulators, but it isn’t necessarily the wild, wild west — there is security in place to ensure transactions go through.
For businesses, there are a host of positives in accepting digital currency, which is why digital currencies are becoming more mainstream.
All, however, is not rosy. These are early days and there are enough risks — including some pretty big ones — to leave businesses cautious about adopting digital currency.
The Rewards
Transaction Fees: With digital currencies, transaction fees are entirely optional — you might opt for zero fees and wait a bit longer for processing, or pay a higher premium for quicker transactions. The market is all over the place so you do have options. This is in sharp contrast to the traditional fees businesses are forced pay for debit and credit-card processing.
Worldwide Markets: Traditionally, shifting money overseas can take a while — upwards of five days — and be costly. Bitcoin does it much quicker, costs far less and you can track the movement of funds throughout every single process. And markets are quickly opening up across the world: in India and Africa where banks don’t have a sterling reputation and it’s less secure to carry cash, digital currency is becoming popular.
Minimal Fraud: Once you move money in bitcoin or any of the other digital currencies, that transaction is irreversible. Fraud is almost impossible.
Simple Setup: There are a host of bitcoin payment processors and most of them are dead-easy to set up. They can be accessed via a tablet or a smartphone app, negating the need for a Point of Sale (POS) system and pricey hardware. The big online commerce sites like Shopify have bitcoin integration as part of their service. You just need to sign up.
The Risks
Volatility: Among the big risks is volatility — after all, we’re talking an entirely decentralized set of currencies here. They are not guaranteed by a bank or tied to a standard currency, and they can and have fluctuated wildly. However, many payment exchanges will instantly, upon payment, convert to the currency of your choice to minimize that volatility.
Security: Earlier this year, Mt. Gox, one of the biggest bitcoin exchanges, handling 70 per cent of all transactions, went bust. They said they lost 750,000 bitcoins, stolen from their vault. If your credit card is stolen, your bank may cover losses, and if you lose cash, the cops may be able to find it. However, with digital currency, if someone hacks into your system or you lose your coins, this is not covered by deposit insurance. Once they’re gone, they’re gone.
Leaping the Digital Divide
Worried about whether your customers are ready for this? Well, they are already used to moving their money around, paying bills online and making purchases via debit and credit cards — so it isn’t a difficult jump to a digital currency that exists only in electronic form.
And really, when was the last time you had actual money in your wallet?
Digital Currency’s Big Three
Bitcoin
The best known of the bunch, bitcoin was created in 2009 to put power back into the hands of the people. There are currently 12-million-plus bitcoins in circulation (the cap is 21 million), and due to their scarcity they are valued high.
Dogecoin
This is a recent player, created in December 2013. Because there are a lot of dogecoins in circulation — a whopping 65 billion — they are valued low. They are named after a Shiba Inu dog named Doge, a bit of an Internet phenomenon.
Litecoin
Launched in 2011, litecoin is nearly identical to bitcoin but uses an open-source design. Litecoin will total 84 million coins.
