While Bitcoin has been around since 2009, only now has its popularity grown enough that many are now thinking seriously about Bitcoin’s many issues and problems, as well as its future. This has, of course, ensured a mushrooming of startups catering to the use, investment, and regulation of Bitcoin. Asia’s first Bitcoin event, Bitcoin Singapore 2013, held last Friday, tried to look into the opportunities and challenges that glare at the industry.
The event saw participants from all over the Bitcoin industry, from cryptography specialists to lay investors. Below are some of the issues facing Bitcoin today and what startups are doing to solve them.
Key issues: Usability and security
Among end users of Bitcoin, two top problems slowing its adoption are that of usability and security. You wouldn’t want your assets tied up in money that is not easily spent, and be easy to steal to boot, would you? To ensure greater penetration of Bitcoin among end users and merchants, Hive‘s new wallet for Mac OSX integrates them together, letting users spend their coins conveniently and giving merchants a platform to market to Bitcoin users. CoinPunk, an open-source Bitcoin wallet, aims to tackle the latter problem by utilizing browser-side encryption, making sure that even if a Bitcoin wallet server is compromised, the Bitcoins stored within cannot be stolen by external parties.
Lack of confidence
Another issue facing Bitcoin users is confidence, both among exchanges and transactions. Current Bitcoin exchanges are plagued with fraud and compliance problems, making users leery of changing their money into Bitcoins. This results in large price swings due to an inefficient market, further eroding confidence in Bitcoin. The solution to this, as envisioned by Bex.io, is in opening the creation of Bitcoin exchanges to trusted, respectable organizations. Bex.io aims to partner with organisations which have sufficient capital and good banking and regulatory relationships to create their own Bitcoin exchanges. As for transactions, BTC-Asia offers a secure escrow service between buyer and seller to minimize fraud and build trust among Bitcoin users.
The growth in cryptocurrencies
Despite the dent in confidence in Bitcoin caused by the bad press surrounding Silk Road and its potential for crime, the market for Bitcoin is growing day by day. According to Steve Beauregard, CEO of GoCoin, the growth of cryptocurrencies such as Bitcoin is due in part to the instability of fiat currencies, particularly the US dollar. The exponential rise in mobile and internet penetration in developing countries, too, has contributed to Bitcoin’s growth in those areas as well. To ensure consumer protection in Bitcoin amid its anonymity, Beauregard advises merchants to move towards a reputation-driven marketplace, for example eBay. As for criminal activity, Beauregard reassures users that criminals make up only a small portion of the pie. The majority of users use Bitcoins for donations towards causes, in fact. The greatest risk for merchants, in fact, is the risk of missing out on Bitcoins as the payment method of the future.
Apart from using Bitcoins as a transactional tool, the recent surge in the Bitcoin price vis-a-vis the US dollar has made it an extremely attractive investment vehicle as well. One startup that has capitalized on this is BTC.sx, the first Bitcoin financial derivative. Founder Joseph Lee has identified three key characteristics that ensures Bitcoin’s place in investment portfolios. Firstly, the Bitcoin market is small in terms of capitalization, minimizing the barriers to entry and makes it easy for small players to buy in. Due to the small size, the Bitcoin market is illiquid as well, making arbitrage – the risk-free simultaneous buying and selling to take advantage of price differences – opportunities plentiful. Finally, the rapid growth of the Bitcoin market guarantees a plenitude of investment opportunities. There will be only more brokers using Bitcoin as a financial instrument, offering technical analysis and DMA (direct market access).
Finally, given the current financial climate, regulation of Bircoin is a certainty. Hence it is imperative that Bitcoin startups and companies engage in self-regulation to protect themselves both from crime and legal non-compliance. To aid in this, Matrixvision has introduced two products aimed at businesses, Evisafe and CleanCoin. Evisafe helps companies prove compliance with financial regulations by keeping secure records, providing a system to verify high-risk customers such as government officials, and having a reminder service for renewing due diligence. CleanCoin, on the other hand, lets businesses identify transactions that involve criminal activity, bridging the gap between regulators and businesses. Matrixvision’s Director of Compliance, Anthony Hope, believes that Bitcoin companies should self-regulate when they are small, and protect themselves from getting involved in criminal activities. The Bitcoin industry should never wait till disaster strikes to regulate themselves, as regulation passed down by governments after events will always be harsh, ham-handed, and ineffective. One needs only to look at the 2008 financial crisis for an example.