Most will have missed Chancellor George Osborne’s reference to digital currencies during his final budget speech of this parliament. But among the tranche of budget documents released by the Treasury on 18 March was one entitled: Digital Currencies: response to the call for evidence’.



It marked the first time measures to support digital currencies have been included in a budget and for fintech entrepreneurs such as Tom Robinson it was most welcome. Robinson is co-founder of startup Elliptic, which provides a secure place for financial institutions to store their bitcoins.



He took part in the consultation and believes progress has been made. “We are happy with it. It follows the recommendations that we and other businesses made, such as bringing digital currencies under anti-money-laundering legislation. This will bring legitimacy and clarity to the industry,” he says.

Bitcoin is very efficient for retailers because you are cutting out the middle man Tom Robinson, co-founder of Elliptic

For Robinson, greater credibility and understanding of digital currencies is key. He was also pleased when Osborne himself bought some bitcoin last year, saying it gives the currency credibility, and hopes government is catching on quicker than it did with the internet. “Hopefully, government isn’t going to make the mistakes of the mid-1990s, when we missed out on much that happened.”

How it works



But bitcoin and other digital currencies are far from being accepted by the wider public, or many businesses. For those not in the know, cryptocurrencies are created by software and operate on a peer-to-peer basis, bypassing banks altogether. They have no national or sovereign guarantor. This means, as the government has noted, they can be a highly efficient means of transaction. “Bitcoin is very efficient for retailers because you are cutting out the middle man, such as Visa or Mastercard, that takes 3% of every transaction,” says Robinson.

Also exciting is the blockchain technology that sits behind it; a giant, decentralised public ledger that records all bitcoin transactions. The blockchain is thought to be unhackable and for retailers it provides a guaranteed way of knowing if a transaction has gone through. It also has the potential for other information to be attached to it.



So if someone made a purchase, such as a car or insurance policy in bitcoin, this could be logged next to the transaction and held in perpetuity. Robinson says: “The important thing is that it is decentralised; there’s no central control. It records every single bitcoin transaction, although it can be used for a range of different assets, not just currency. There are a lot of real-world applications.”

The downsides and exchanging bitcoin



While bitcoin is the best known and most popular digital currency, there are many others in use. Therefore, its future is by no means certain and some wonder whether it will be supplanted by another in the future. Furthermore, no digital currency is underwritten by a national government, so if one of them collapsed tomorrow users would stand to lose all they had.



Bitcoin has also proven itself to be prone to volatile price fluctuations, which means retaining the currency in a bitcoin wallet can be a risky decision. For this reason, many companies that accept bitcoin tend to do it through a third party company such as Bitnet or Bitpay.



This allows them to accept a payment, but then exchange it into a fiat currency (sterling, dollars, euro) before there is any chance of devaluation

Stephen McNamara is chief technology officer of Bitnet, which he co-founded in January 2014. McNamara’s background was in the online payments industry. He previously worked for CyberSource, which was acquired by Visa. “When we came across bitcoin, we saw it as a really elegant solution for a lot of problems we had been trying to solve with online payments,” says McNamara.



Simplifying international payments



McNamara says airlines are interested, as they are plagued by high levels of fraud. He says the blockchain eliminates this concern and makes international transactions far simpler. “The challenge for businesses dealing with customers in many countries is the complexity of the different financial systems and networks,” he says. “With bitcoin, they can create a global reach and anyone with a smartphone is a potential customer.”

Entrepreneurs should be aware, though, that digital currencies, unlike fiat traditional money, is not guaranteed by a national government. If a digital currency’s value collapses, or the money is stolen or lost, the owner may be left with nothing. However, there are many enthusiasts and their combined digital wealth represents a market in itself.

Spending bitcoin



Rusty Nash is co-founder of Gift Off, which lets customers convert digital currencies into vouchers and gift cards used by major retailers such as Amazon. Nash says: “I was getting involved in bitcoin early on, but back in 2013 the only thing you could buy with it was web-hosting or soap. We set up the gift card business and the momentum just grew and grew as so many people wanted to spend their bitcoin on everyday things.



“A lot of our customers are early adopters and hold a lot of bitcoin, but need some way of spending them. They bought when the price was cheaper, so their holdings are worth a lot more. People that want to liquidate their coins in the UK can use our service.”

The business accepts more than 20 different online currencies, although bitcoin is by far the most popular. Nash retains a lot of bitcoin and uses suppliers that accept it, including his accountant.



He says the biggest benefits are security and efficiency. “You can take payment from anyone and you can do that with absolute confidence that it has gone through as you can track it on the blockchain,” he explains. “There are no chargebacks and the fraud risk it absolutely minimal. Once someone has put something on the blockchain, they can’t take it back. “Also, you don’t need to provide a shipping address. All I need is an email address to send the codes to. With credit cards, you need an address, and this data can be hacked.”

Bitcoin also enables Nash to trade internationally in many countries, despite the fact his business is still very new. “We have companies approaching us that are interested in bitcoin and want to gauge the market. They are taking us right across Europe and help us to expand internationally.”

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