Bitcoin has advantages over traditional banking services
Simon Gentry (right) from MWW discusses Bitcoin with Bryan Krohn (middle) from BitPay and George Peabody (left) from Glenbrook Partners.
Bitcoin's rise as both a currency and technology protocol often is compared with the early days of the Internet. In that sense, virtual currency enthusiasts believe bitcoin and its brethren such as dogecoin, litecoin and others are nowhere close to reaching their full potential.
"Bitcoin isn't even at version 1.0 yet; we're at version .8," Bryan Krohn, CFO for bitcoin processor BitPay, told attendees last week during a panel discussion at Mobile Payments Today parent company Networld Media Group's ATM & Mobile Innovation Summit in Washington, D.C.
Krohn joined George Peabody from Glenbrook Partners and Simon Gentry from MWW to discuss where virtual currencies fit in today's banking system.
Despite media headlines that proclaim big banks are jumping on the bitcoin bandwagon, the real truth is at the other end of the spectrum: Banks are attempting to understand virtual currencies, but no one is ready to dive into them just yet.
"I see that there is utility for banks in the future, but what they see today is regulatory uncertainty," Krohn said.
He added that BitPay has spoken with banks about its business and those institutions are comfortable with the way it operates. Companies such as BitPay, Coinbase, GoCoin and others are attempting to distinguish themselves as legitimate, growing firms in an industry that is out to prove the Bitcoin protocol is safe and can offer advantages over traditional banking services.
"Bitcoin can quite easily sit alongside other traditional financial services," Gentry said.
One distinct advantage virtual-currency systems have over today's bank services is that it is a "borderless money system that doesn't have an intermediary," Krohn said.
Users can move a large amount of funds in minutes compared with the days (and sometimes weeks) it takes for traditional banks to clear foreign transactions.
"It opens international doors," Krohn said.
Another clear advantage virtual currencies have over the traditional payments system is that it costs pennies or nothing to move funds between two parties, and this has merchants' attention.
BitPay processes bitcoin transactions for NewEgg, TigerDirect, the NBA's Sacramento Kings, WordPress and Zynga, among others.
"They choose BitPay because compliance and regulatory [issues] have to be [top notch]," Krohn said. "There are a number of things we won't touch because it's too risky. It's been very compelling for merchants and consumers."
Peabody believes a great consumer use case for virtual currency is microtransactions. "There are a lot of digital media folks that could benefit from bitcoin," he said.
Business-to-business payments could also benefit as well.
"You can move large amounts of money in about 15 minutes and know it's going to get there," Peabody said. "In terms of capital management, it can have a big impact."
All three panelists recognized virtual currency's regulatory issues. How could they not? It is an issue that continues to scare off banks, consumers and merchants. Some countries have banned the public from using virtual currencies.
"U.S. regulators have been stern, but haven't rejected it," Peabody said. "I'm glad we're letting this young tool grow."
Gentry believes bitcoin can grow into a more common payment option in the next five years. He agrees with Peabody that it will find a niche in micropayments. Regulators also will better understand its uses.
"There is still a risk for political overreaction," he said. "But if everything continues the way it is now, microtransactions and large purchases for business-to-business payments will benefit from bitcoin."
Will Hernandez Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.