Last week at the annual General Assembly of the Association of Corporate Treasurers—Suisse Romande (ACTSR) in Geneva, Switzerland, a representative from the Bitcoin Foundation gave a presentation on what Bitcoin is, how it works, who accepts it, why it’s innovative and where the pitfalls and skepticism lay. The presentation led to a candid discussion among European treasurers about Bitcoin.
Here are some facts about Bitcoin that were presented at the ACTSR General Assembly:
- There is a fixed amount of Bitcoin, set at 21 million bitcoins, and full expiration is set for 2040.
- It offers peer-to-peer settlement, 24 hours a day, with very low transaction costs.
- Storage of Bitcoin is done by a unique personalized token or code and is not retrievable by anyone other than the user with the code. If the token or code is lost, the Bitcoin can’t be replaced.
- Bitcoins can be also stored in third party exchanges, on personal computers, phones, etc.
- Ledger information and tracking is done in the cloud for ownership purposes.
- It is a payment network as it is much a digital currency.
- Bitcoin wallets allow you to settle Bitcoin into currency.
- Mining Bitcoin is done by unlocking algorithms to add more Bitcoin into the system—all the while counting down towards 21 million total capacity.
- Pricing for Bitcoin is set on a global supply and demand network of peer to peer networking.
- Bitcoin is written in completely open source code, yet is counterfeit proof (due to the algorithm key) and can’t be double-spent.
- The target demographic for utilizing Bitcoin is the 20-29 year age group.
Issues raised by European treasurers centered on understanding and comparing Bitcoin to current forms of payment, the payment systems and various currencies. Below is a synopsis of their concerns:
The purchase and transfer is completely anonymous. Some treasurers had an issue with Bitcoin as it pertained to Office of Foreign Assets Control (OFAC) laws, trade embargos, regulatory reporting, and the heightened issues around not knowing who your customer is—especially depending on the product being sold in exchange for Bitcoin. It should be noted that Overstock.com, one of the largest online retailers, was the first mainstream retailer to accept Bitcoin through a Bitcoin wallet for settlement.
Bitcoin may not be good for the unbanked. Ultimately you need to settle Bitcoin into currency. Putting the unbanked in a sophisticated arrangement that deals with encryption that can be lost if the Bitcoin code is lost isn’t really a solution that treasurers agreed with. For example, treasurers in the United States struggle with getting unbanked employees on payroll cards, so how would they get their unbanked employees on Bitcoin with payroll issues and the added complexity and storage?
Bitcoin retail payments via mobile could face limited acceptance. The currency offers peer-to-peer settlement over desktops, mobile phones and tables, so anywhere there is electricity, Internet access and a computer, you can transfer Bitcoin. You can even use an app in Android to help with the balance tracking. Apple, meanwhile, doesn’t allow any Bitcoin apps in its app store, and there is an assumption the company will roll out its own payments platform—as was discussed at the Assembly. If Apple, one of the world’s largest mobile phone manufacturers, doesn’t allow Bitcoin apps, that might be a good indication that Bitcoin is not a proven payment form just yet.
Bitcoin has several legacy issues, headline risk and a reputation for abetting illegal activities. The perception by the majority of treasurers is that it is not a trustworthy currency. The Mt. Gox exchange was addressed as well as the Silk Road event. Plus, the Internal Revenue Service ruling that Bitcoin is property makes it more difficult from an accounting perspective. For many, the past issues of Bitcoin supporting a haven of illegal activity is enough to pass on it.
Bitcoin is still only five years old. Many treasurers agreed that the innovativeness of the digital currency was the intriguing aspect, and they allowed that there might be potential in the future in certain areas where payment systems are in their infancy or less regulated. Figuring out how this is applicable in their course of business is where treasurers struggled most.
The representative from the Bitcoin Foundation stated, in 4-5 years, Bitcoin will really start taking off and become a more mainstream currency that could eventually surpass PayPal. The Bitcoin Foundation stated that $289 million in Bitcoin was processed last year, surpassing Western Union’s $216 million in payments. Bitcoin is in the process of securing an ISO trading code to identify the currency much like foreign currencies have a three-digit code.
Perhaps Bitcoin will become more mainstream, but only time will tell, and there are still issues to resolve. Until there is more clarity and Bitcoin becomes more mainstream, many treasurers are taking a wait-and-see approach.