Mobility Matters: Bitcoin Basics for Credit Union Executives
The promise of Bitcoin – the innovative virtual currency that operates without governmental support – is dazzling.
Money effortlessly moves across international borders (Bitcoin by definition is universal) and it also is a stake aimed at the heart of credit card companies because its transaction fees are negligible, compared to the above 3% usually imposed by MasterCard and Visa.
What’s exciting about the peer-to-peer based Bitcoin, said Carol Van Cleef, head of emerging currencies at Washington, D.C., law firm Patton Boggs, is that “it is a movement towards frictionless payments. Bitcoin is a cash equivalent.”
The total value of Bitcoin in circulation is around $1.3 billion and daily there are some 50,000 transactions, according to the Bitcoin Foundation, which was formed to standardize and protect the currency.
The question for credit union executives is blunt: are there advantages to offering Bitcoin- denominated accounts, and know that at least some experts believe that doing so “would be a terrific PR stunt,” said Stephen Fraga, CEO of a San Francisco computer training company who personally holds Bitcoin.
Another reason to get familiar with Bitcoin: “This currency may become a serious disrupter that could destabilize credit unions and banks,” said Ari Zoldan, a Bitcoin expert and CEO of Quantum Media Holdings in New York.
Zoldan admits that is a long shot – “whether Bitcoin comes to fruition is yet to be seen” – but, he said, it’s a risk financial institutions need to look into.
Bitcoin also recently had its 10 minutes of fame when, in Cyprus, the government shut all ATMs, after first stating that to resolve an economic crisis, it would seize a portion of every bank account in the nation. That triggered a flight into Bitcoin that saw the value vault from under $100 per unit to over $260 in a matter of days. It has now settled under $100, although experts are reticent about identifying where the resting place will be.
Call volatility the first big issue Bitcoin has to surmount to gain credibility.
Next Page: Money Laundering
Another issue: Bitcoin has been associated with money laundering - a high degree of anonymity is built into the peer-to-peer exchange system – but that perception is changing because of new federal regulation.
Handle Bitcoin and, per regulator FinCEN, it is no different than a “real” currency such as US dollars, in terms of reporting requirements for businesses that handle Bitcoin payments as an intermediary.
So called “Money Services Businesses” are accordingly obligated to report on at least some of their money transfers.
For traditional financial institutions – meaning credit unions and banks – the FinCEN regulations amount to very little new bother because they already have coping strategies in place.
The third Bitcoin problem, said Kim Forrest, senior equity analyst at Fort Pitt Capital Group in Pennsylvania, is “where can you spend it? Not many places accept Bitcoin.”
She is right about that. Few outlets accept Bitcoin, so few that there even are websites that list places that do.
The Bitcoin downside is substantial, but don’t be too quick to write it off. Lawyer Van Cleef, for instance, said, “We already are seeing more acceptance of Bitcoin in mainstream commerce.”
But the even bigger future may be as the currency for smartphones. That is because Bitcoin potentially has enormous appeal as a mobile wallet. Proof here is that already an estimated one-third of Kenyans have Bitcoin wallets because M-Pesa, the popular mobile platform in sub-Saharan Africa, now embraces Bitcoin.
What’s required to put Bitcoin into the conversation in the U.S.? “Over the span of the next one to five years, it has to become easier for merchants to accept it,” said Gareth Macleod, a founder of TinkerCoin, a Bitcoin startup that aims to make it simple to get started in Bitcoin.
Right now, merchants need either a high level of technical skill, or a willingness to pay third parties, to be able to accept Bitcoin, but that may change, suggested Macleod.
There is definite appeal to merchants with Bitcoin, ranging from the low transaction fees to the fact that with Bitcoin chargebacks are essentially impossible (a charge, by design, is irreversible).
What’s in it for consumers to use Bitcoin? Most transactions are anonymous and that matters when privacy is important. For two, so far no other digital wallet has taken root and if it has to be Bitcoin, wallet advocates are ready to applaud the innovative currency.
So what’s a credit union executive to do about Bitcoin? Van Cleef shrugged, “People are having trouble getting their heads around Bitcoin.”
In other words: uncertainty is par for this course. Inaction also is, as most financial services executives are in fact finding mode, not in charge-ahead mode.
But the one fact: it’s become important to get familiar with Bitcoin because there’s every appearance that many now hunger for a virtual currency. It may turn out to be Bitcoin, it may be something else, but probably the time is right for a currency that functions without regard to governmental instability or bad monetary policy.