There have been a lot of newcomers to Bitcoin over the past several months. The coverage of Bitcoin has become so expansive that I’m being questioned about the currency by my otherwise tech illiterate friends. Unfortunately, a number of Bitcoin’s newcomers likely got caught up in the most recent valuation spike, however short lived it may have been. The good news is that Bitcoin’s valuation is beginning to level out. Coupled with the prospect of bigger news on the horizon, now may be a good time to take another look at Bitcoin.
Bitcoin’s increase in value has brought an increased interest from previously unaware, yet well established, financial companies. It’s recently been reported that PayPal is interested in including Bitcoin into PayPal’s services (Bloomberg TV’s video interview with David Marcus). The news is certainly of interest as many Bitcoin enthusiasts have thought of PayPal and Bitcoin as would be rivals. Incorporation of Bitcoin into PayPal, as another funding mechanism or otherwise, could have a largely positive impact on Bitcoin.
On a related note, Western Union has expressed interest in accepting Bitcoin. For a company that specializes in person to person money transfers, Bitcoin could be a big competitor. Many early Bitcoin adopters have speculated that Bitcoin could be disruptive to Western Union and PayPal. The recent news out of these two companies suggests that they may be more willing to adapt to the changing nature of digital commerce. As reported recently by Mashable (linked above), Western Union is also interested in getting into other online transactions, such as gaming and telephony.
I am very intrigued by Bitcoin. It has all the signs. Paradigm shift, hackers love it, yet it’s derided as a toy. Just like microcomputers.
None of this is to say that Bitcoin will, without a doubt, become the de facto currency of the internet. It does however point to a possible future direction for the digital currency, which has recently accomplished many of the early hopes of it’s adopters. Such well established companies, well versed in the financial regulations of the day, could be just what Bitcoin needs to go mainstream. Bitcoin is admittedly difficult for the technological layman. Services like PayPal and Western Union have found success in part by being accessible to even those with the most meager technological and financial backgrounds.
However promising it might be that Bitcoin is gaining the attention of such services, it isn’t without controversy elsewhere. In Canada several Bitcoin exchanges have recently had their bank accounts shut down by Canadian banks. As reported, little in the way of cause has been supplied by these banks. The exchanges operate within the bounds of Canadian law and are registered with the Canadian government.
In the United States, FinCEN (Financial Crimes Enforcement Network) has issued additional guidance that applies specifically to Bitcoin. As reported by Joe Matonis, these regulations could have a devastating effect on Bitcoin, similar to the early days of PayPal. While it would be difficult to enforce strict regulations on the Bitcoin network itself, the exchanges are a different matter. Bitcoin exchanges are essentially the point at which traditional financial systems and cryptocurrencies collide.
What It All Means
Taking these news stories in pieces one can draw a number of different conclusions. Step back for a moment though and a much broader, clearer picture begins to emerge. Bitcoin is maturing into a protocol that demands attention by longstanding players in the financial world. Both the well established money transfer service Western Union, and its younger cousin Paypal, see potential in the Bitcoin network. Banking systems such as the aforementioned in Canada, as well as others, are either entirely confused by Bitcoin or possibly feel threatened. Even government financial regulators feel they need to finally get into Bitcoin, as they’ve previously remained mostly absent.
Despite the sensationalist headlines, Bitcoin does not appear to be down and out. Rather, Bitcoin appears to be readying for the next round of growth. This time we’re looking at adoption by older financial services, eager to expand their digital footprint. That’s not to say Bitcoin is without risk, nor do I advocate that you dive in headfirst. At the least Bitcoin is worth a second look. Though it’s trading significantly higher than it was a few months ago, there is a huge potential upside in what could be the most disruptive technology we’ve seen in decades.