News & Views - Savantor

Jumping on the Bitcoin Rollercoaster

Thursday, 09 January 2014
The last couple of weeks have seen a fair amount of activity on the topic of Bitcoin, including moves by governing bodies and yet more bad press. The perception and understanding of Bitcoin by the public is extremely low, especially following media reports of the FBI raid on the online "black-marketplace" Silk Road where it seized approximately 175,000 Bitcoins and now the vice-chairman of the Bitcoin Foundation, Charlie Shrem, being charged by US Prosecutors in relation to his own dealings on Silk Road. The constant association in the media of Bitcoin to illicit activity is obviously damaging to its public profile and therefore its attractiveness to consumers and merchants. Bitcoin is a fledgling currency, still largely under the radar of the general public so the horror stories are the ones that make the headlines. Where the Bitcoin path ultimately leads is wide open with opinions seemingly polarised on the topic. Digital currencies will certainly become established in the mainstream eventually – the question is when this will be, which form it will take and whether there is room for more than one global currency? To understand the size of the opportunity in Bitcoin, we just need to look at those 175,000 Silk Road Bitcoins held by the FBI (approximately 1.5% of all Bitcoins in existence at the time of writing). At $945 per Bitcoin (xe.com), they represent around $165 million, with the value of all Bitcoins in existence today being equivalent to half of the UK's total public spending budget for industry, agriculture and employment for 2013-14. Last year, Germany formally declared Bitcoin as a "unit of account" and this month both the French Senate and the NY Department of Financial Services have held hearings into how Bitcoin and other digital currencies could be regulated so it is being increasingly noticed by the wider audience. The business opportunities for Bitcoin in the payments industry are not likely to be realised through previous business models. Bitcoin is a peer-to-peer payment method leaving little or no room for processing or middle-man fees. The opportunities for the payments industry will likely lie in the services and intellectual property that can be developed around the currency. The challenge for the payment industry, therefore, is to identify those opportunities and invest in the infrastructure whereby these ancillary services can be delivered through consumer/merchant wallets. At the moment, though, being a financial instrument it is a technology that has attracted the attention of the governing bodies keen to bring it in line with other monetary instruments in terms of regulation and taxation. Unless Bitcoin is pushed to the market soon, we may miss out on the positive opportunities it holds within.
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