Campus administrators, CFOs and bursars may wonder if their campus should accept Bitcoin, the virtual currency that has made headlines for the last few years, as a potential payment method. To provide some perspective, we’ve pulled together a few facts about Bitcoin as a thought starter.
Key Facts About Bitcoin
Bitcoin is Software
Bitcoin is a software-based online payment system introduced in 2009, with payments recorded in a public ledger using its own unit of account, which is also called bitcoin.
Bitcoin is a Voluntary Currency
Bitcoin is a peer-to-peer payment system without a central repository or administrator, and thus considered a ‘decentralized virtual currency.’ Because it is not backed by a central bank, it is not considered legal tender, which means it is a voluntary currency and its use as a transactional currency is limited to those willing to accept it.
Why Bitcoin Works
As opposed to the US dollar, which is regulated and governed by a central authority (the Federal Reserve Bank) and thus creates trust in the currency, bitcoin generates trust because the open-source software makes all transactions visible and verifiable to everyone participating. This makes it impossible to counterfeit bitcoins or falsify transactions. However, bitcoins can be stolen (for example via hacking into a user’s digital wallet) or lost (for example if the computer that contains the encryption key to someone’s digital wallet is lost or destroyed).
How to Get Bitcoin
There are a few ways to obtain Bitcoins:
- Bitcoins can be bought and sold with many different currencies by individuals and companies.
- Bitcoins may be purchased in person or at a Bitcoin ATM in exchange for cash currency.
- Online exchanges of Bitcoin buy and sell bids, but since Bitcoin transactions are irreversible, buyers and sellers of Bitcoin must take extra measures to ensure they have successfully completed the transactions.
- Bitcoin mining requires the use of special software to solve math problems. Individuals who “mine” are then issued a certain number of Bitcoins in exchange. This has resulted in a creative way to incentivize individuals for mining and an opportunity to increase the adoption of the currency.
Bitcoin & Merchants
Because of the presumed capacity to obfuscate the source of payments in online transactions and bypass money transfer controls by governments and law enforcement agencies, bitcoin initially came to be associated with purchases of illegal goods and services. However, by now, over 35,000 merchants are accepting bitcoin, including Dell, Expedia, NewEgg, and Zynga. Greenpeace accepts donations in bitcoin, and PayPal offers its North American merchants the possibility to receive customer payments for digital goods in bitcoin. In late 2013, the University of Nicosia (Cyprus) became the first university in the world to accept bitcoin. What makes bitcoin attractive to merchants is the lower processing fees, which compare favorable to credit card processors.
Bitcoin & Consumers
Because bitcoin eliminates banks as financial middleman, it also eliminates the legal protections offered by financial institutions, such as chargebacks. This has hampered consumer adoption.
The total value of all bitcoin in December 2013 amounted to roughly $14B, whereas in November 2014, the total value had fallen to about $5B, a 60%+ decline in the value. The extreme volatility of this currency is driven by speculation, uncertainty about regulations and viability as a store of value, and insufficient liquidity. At its current value, the bitcoin market is roughly equivalent to the GDP of Suriname or Barbados.
Is Cashnet Considering Bitcoin?
Cashnet has no immediate plans to add functionality to our system to facilitate Bitcoin payments, but we will continue to monitor its evolution so that we may be well positioned if a strong use case develops for its acceptance. For example, Bitcoin is a borderless currency. Perhaps it could help ease life for the growing population of international students? We’ll do our best to keep you abreast of the developments that may impact you!
Sources: Wikipedia.com, coindesk.com, cointelegraph.com, coinmill.com, bitcoinmining.com