To its critics, the bitcoin is a digital version of Monopoly money, and a fluctuating form of Monopoly money at that. To speculators and retailers, including those here in Ireland, the bitcoin is an enigma enticing them to view it as a serious currency.
The crypto-currency rose beyond US$1,000 in value for a single bitcoin before Christmas then crashed to half its value after the Bank of China prohibited Chinese financial institutions from using bitcoins.
In the past week, David Marcus, president of PayPal, said the digital currency could eventually become a competitor to the online payments service and he has not ruled out potentially processing them in genuine online transactions.
Overstock.com, which has operations in Ireland, became the first major online retailer to accept bitcoins as payment after forging an agreement with digital wallet Coinbase to set the exchange rate the moment an order is placed and with the immediate transfer of the funds.
In Canada and the US, entrepreneurs have begun installing ATMs specifically for bitcoins, in which bitcoins can be added or subtracted from their personal crypto-currency accounts.
So what is bitcoin exactly? Developed by a technologist under the pseudonym Satoshi Nakamoto, it’s a technology that became operational when the first bitcoins were issued in 2009.
Users send and receive bitcoins via software that uses encrypted private keys to verify the existence and identity of each bitcoin, which can be stored in a kind of digital wallet.
A public database called a block chain maintains a record of all bitcoins in existence, and transactions are verified by a system known as mining, where computers unlock a cryptographic puzzle, releasing one new bitcoin every 10 minutes.
The value of all bitcoins in existence to date is estimated to be at around US$10bn.
Demand for bitcoins reached fever pitch just before Christmas, when the value of a single coin surpassed US$1,000. In one case, a UK computer owner who threw away an old hard drive containing 7,500 bitcoins he acquired when they were virtually worthless, was seen scouring a landfill for his lost US$7.5m fortune.
In Ireland, the bitcoin community is still very small and the activity is mainly driven by a curious blend of digital theorists who celebrate the arrival of a new kind of economy and speculators who hope ownership of bitcoins will one day make them rich.
An organisation called the Official Irish Bitcoin Association has been forged to ease bitcoin’s arrival into the Irish economy and bolster the currency’s credibility.
Alan Donohoe, founder of the organisation, said in most cases, a central bank has a monopoly right to issue currency; it regulates the production of currency by banks through monetary policy.
“The simple reason why bitcoin is becoming more and more viable is because the volatility is decreasing, however, liquidity will need to increase – which it certainly is,” Donohoe said.
The banks have no hand in bitcoin at the moment, yet they and the Government have been taking notice. Donohoe said he believes that for bitcoin to become mainstream, some Government regulation is required.
“We are in the process finalising some documents which will be sent to relevant departments in Government to start the process of integration into the currency system of Ireland,” he said. “Any law the Irish Government introduces regarding bitcoin will make or break it to a certain extent.”
While Donohoe had no exact figures available on the number of people trading in bitcoins at present, he added: “One of the Dublin companies I am involved in has about 10 transaction per week, both in-store and online. (The year) 2014 will be a year of immense growth in this area.”
Bitcoin acceptance in Ireland
A number of businesses around the country claim to accept bitcoins but from our calls very few have yet to make an actual transaction. Among the businesses that have so far expressed a willingness to accept bitcoins are a B&B in Co Offaly called the Ring Farmhouse, a country retreat in Baltimore, Co Cork, called Killeena House, and the 3 Amigos burrito bar in Bray, Co Wicklow.
“I wouldn’t say too many businesses in Ireland have used them yet,” said Carmel Carroll, proprietor of the Ring Farmhouse. “We haven’t had any enquiries yet from boarders willing to pay in bitcoins.”
Carroll added that her son Donnacha is big into bitcoins and knows how to convert them.
“He’s very keen on them and wanted us to invest in them when they were only worth four or five dollars. We could have been millionaires by now,” said Carroll.
Further along in terms of owning and acquiring bitcoins is bitcoin broker Eircoin, a Dublin-based business that helps individuals get their hands on the crypto-currency.
Dave Fleming, Eircoin founder, started the brokerage as a hobby based around the theory of it before growing it into a business.
“Bitcoin is still in the early stages and lots of people think of it as a born-on-the-internet currency, but its more than that,” Fleming said. “It’s a revolutionary idea and currency is just one manifestation of that. People treat it like a currency but really it’s a distributed ledger. People also talk about it as a way of facilitating anonymous transactions but really all transactions are traceable.”
Eircoin’s existence centres on making it easy for people to access bitcoins and much of Fleming’s efforts involve teaching people how cryptography works.
“The hardest thing is getting your hands on them, the next challenge is security. Bitcoins can be stolen the same way your email can be hacked, so I function more like a consultant than a broker.”
Fleming said there is a growing population of bitcoin enthusiasts in Ireland, with a meet-up held just before Christmas in Dublin.
He added he is excited about where the technology is going.
“There is really interesting software being built that allows people to transact in bitcoins without owning a bank account. One technology called Bitwasp is being developed here in Ireland that allows retailers to build a full e-commerce shop with security and escrow built-in,” said Fleming, who added this could be advantageous for a small, local economy, with no need for bank accounts.
He said business spiked in December when the value of bitcoins exceeded US$1,000 apiece. “I helped a fair number of people get bitcoins. They were mostly speculators who wanted to hold onto them. People were definitely buying them with a view to the future.”
Fleming said he’s not surprised Overstock.com began accepting bitcoins because it means they can side step the 2-3pc charges that apply to credit-card transactions online.
‘Bitcoin is here to stay’
At the end of the day, Fleming said he sees bitcoins as just another way for people to spend. “Bitcoin is here to stay – or at least the idea behind it.”
The fluctuating value of bitcoins has no doubt made ownership of bitcoins desirable and in one case a Dublin web design firm called Matrix Internet is attempting to build a platform to accept bitcoins to secure business in the future.
In its quest to do so, Matrix Internet is offering a full e-commerce and digital marketing package worth €8,000 to anyone who will give it four bitcoins (worth €2,000 at the time of writing).
Harold Solomons, business development manager at Matrix Internet, said a few of the company’s developers are fascinated with bitcoins and see it as leverage for winning future business.
“We recently picked up some business in the US and the fact that we will accept bitcoins might put us in the frame for more business opportunities,” Solomons said.
“We’re putting the time in now in order to develop it. One of our clients in Ireland owns a casino and we’re talking about the potential of the casino accepting bitcoin payments, for example.”
Not put off by the volatility of the currency, Solomons pointed to a prediction by Cameron Winklevoss (one of the twins who sued Mark Zuckerberg over ownership of the Facebook idea) that a single bitcoin could in the next five years be worth US$40,000.
“From our perspective, we’re prepared to put an investment into it,” Solomons said. “We are nine people who have built 400 websites in the last 14 years and we’re motivated by the start of a new year.”
There has already been significant investment in bitcoin infrastructure and people aren’t going to move away from that, he added.
“We don’t own any bitcoins ourselves but we’re offering €8,000 worth of business for four of them,” Solomons said. “We reckon the currency will fight back and we want to be there if and when it does.”
A version of this article appeared in The Sunday Times on 19 January