Blockchain

Bitcoin's Biggest Shock: Losing Early Believers and Not Finding Takers

Bitcoin is a virtual monetary system which is a peer-to-peer currency with no central bank. It is based on digital tokens with no intrinsic value.

An outstanding innovation in 21st century payment, bitcoin gained popularity in the FinTech industry in its initial phase but gradually, it seems to look like the virtual currency is losing its charm.

Seeing the fluctuations and multiple security issues faced by bitcoin, the confidence level in bitcoin is diminishing among users. Here are some negative quotes from some renowned personalities from the FinTech industry:

  1. “People were wasting their time with digital currencies such as bitcoin. This is my personal opinion: there will be no real, non-controlled currency in the world. There is no government that’s going to put up with it for long… There will be no currency that gets around government controls.” – Jamie Dimon, CEO of JP Morgan
  2. “Bitcoin will fail to disrupt remittances.” – Money Gram
  3. “Unless you are addicted to volatile trading for the sake of trading, stay away from the bitcoin.” – Steve Forbes, Forbes Writer
  4. “The developers of bitcoin are trying to show that money can be successfully privatized. They will fail because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state.” – Edward Hadas, Economics Editor for Reuters Breaking Views, for NYTimes.com
  5. “Bitcoin has a bad reputation. The decentralized digital cryptocurrency – powered by a vast computer network – is notorious for the wild fluctuations in its value, the zeal of its supporters and its degenerate uses, such as extortion, buying drugs and hiring hitmen in the online bazaars of the “dark net.” – The Economist

Circle, BitPay and Bitreserve have all shifted away from bitcoin in one way or another in last few months. The reason behind this is that it was unable to be accepted by people the way entrepreneurs and VC firms thought it will be.

Boston-based Circle is a consumer Internet company focused on transforming the world economy with secure, simple and less expensive technology for storing & using money. Circle provides mobile apps aimed at enabling online and in-person payments and the convenience of free, instant, global digital money transfers. In April 2015, the company raised $50 million in venture funding from investors that include Goldman Sachs and IDG Capital Partners of China. After funding, the company is valued at around $200 million.

The company has recently introduced new US dollar features that enable anyone now in the United States to send, receive and hold US dollars in addition to using bitcoin for payments within the Circle app.

The user can enjoy the benefits of bitcoin without ever holding or buying bitcoin himself/herself, and without being exposed to bitcoin’s price volatility. Even if the user prefers to hold US dollars in his/her Circle account, he/she gains security, speed and open interoperability with bitcoin wallets and services around the globe. The user can hold US dollars but still send someone bitcoin, and likewise someone can send him/her bitcoin and Circle can instantly turn it into US dollars in his/her account.

Another company called Uphold (formerly Bitreserve) recently announced a complete rebrand and the launch of new functionalities, products and services to several key markets. The consumers, businesses and charities can now fund their Uphold accounts via bank transfer or by linking a credit or debit card, in addition to bitcoin.

Uphold enables anyone, anywhere to move, convert, hold and transact in any form of money or commodity instantly, securely and for free.

At the time of the relaunch, Uphold CEO Anthony Watson said to Business Insider, "When we say ‘bit,’ we don't mean bitcoin, we never did. We meant ‘bit’ as is ‘bits and bytes,’ and reserve is obviously holding the value. But people are confused, they think we're just a bitcoin company and it makes sense as our first use case was bitcoin."

He added, "I don't think bitcoin is going to be anywhere near as important as people say it is today. That's a personal view. The blockchain is very transformative."

In addition to this list of the companies who are moving away from bitcoin in some way or the other is BitPay. BitPay is a payment service provider (PSP) specializing in e-commerce, B2B and enterprise solutions for virtual currencies.

The company has also gradually moved away from its original business model of providing software to allow businesses accept bitcoin payments and is falling back on the blockchain technology to try and find another way to make it work. The company has come up with a set of products for payroll, settlement and intercompany transfer.

It will be interesting to see how the digital currency is going to perform; its fate depends on its acceptance. If bitcoin falls short of widespread acceptance in the days to come, the time is not far when people might forget about the digital currency altogether.

Bitcoin has some drawbacks which are also some of the reasons why it hasn’t gotten the level of acceptance previously thought of by entrepreneurs and VC firms.

Wild Volatility:

The currency’s wild volatility is a major concern for the users. The instability of the currency damages the idea of bitcoin, keeping many financiers such as hedge funders and banks away from it.

Security Issues:

Another major criticism is security. Recently, the Slovenian exchange was hacked and $5M was lost, followed by a $400M hack at Tokyo’s bitcoin exchange Mt. Gox.

Risk of Unknown and Technical Flaws:

Many issues are surfacing, like unexpected flaws due to hardware crashes or viruses that corrupt bitcoin wallets and lead to loss of bitcoin.

Governing Issues:

Since there is no central authority governing bitcoin, no one can guarantee its minimum valuation. If a large group of merchants decides to “dump” bitcoin and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in bitcoin.

Because of these security and volatility concerns, many startups are taking a step back in bitcoin payments.

Priti Thakur

Priti has keen interest in digital money and fintech startups . She completed her B-School education this year and likes to write about innovation with respect to digital payments.

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