Being a savvy global merchant today requires a truly local approach to payments and conversion, but take a step back and this is far from the optimal scenario. In a fully connected world, why should merchants have to maintain such a detailed understanding of the tax, legal and regulatory issues in every country where they have paying customers? If the most disruptive innovations emerge when we drive towards how things should be in an ideal world, it makes intuitive sense that there should be a singular payments platform that enables merchants and individuals to send money between each other regardless of where they live.
As more commerce continues to cross borders seamlessly, there is an increasing need for such a platform and people are recognizing that some form of virtual currency may be the way forward. For many, Bitcoin is the answer, and it’s one of the major reasons that there has been such a heavy focus on this specific virtual currency. Bitcoin was “invented” in October 2008 by someone called Satoshi Nakamoto (who may or may not be a real person) when he wrote a paper called Peer to Peer Electronic Cash System. While companies like Overstock.com are now offering Bitcoin as a payment option, the reality is that Bitcoin, for now, is mainly good for exactly what the paper describes. If you live in one country and want to get money to someone in another country, Bitcoin and other virtual currencies can help make that transaction an easier and cheaper option than going through the traditional banking system.
Money remittance is a massive market ($550 billion expected in 2014) that will definitely transform over the upcoming years, but the allure of Bitcoin is the ability to send money back and forth without worrying about the foreign exchange, bank fees and government regulations that often hamper global commerce. While there are benefits to removing governmental and regulatory oversight, the negatives are that currencies like Bitcoin can become conduits for illegal trade and are prone to heavy fluctuations in value (as measured by the Bitcoin Pizza Index – where the purchase of a pizza in 2010 for 10,000 Bitcoins is at last count worth $5.7M USD).
Since getting, protecting and using Bitcoins is such a technically mind numbing exercise for most of us, there are a ton of businesses like Coinbase and Circle that have popped up to make it easier on all fronts through what’s called a Bitcoin exchange. You put in dollars, euros or whatever currency you like, and you get Bitcoins that you can use until you decide to trade them back in for good hard cash (or more likely digital cash…). The only thing you need to worry about is the current value of your Bitcoins, which for many early adopters is part of the “fun”. In addition, there are number of companies like Ripple who are creating their own protocols around virtual currency, as a counter bet against Bitcoin not becoming penultimate winner of the virtual currency game. There’s a lot of innovation happening to say the least.
Ultimately, virtual currencies are going to blur both the way we think about transacting across borders as well as what we consider to be currency itself. It may not be Bitcoin or any of the other currencies that are emerging today, but they will definitely lead the way to a world that should be… at least from a payments perspective.