It’s a decentralised virtual currency which allows for international transactions without banks, buyer and seller names or traditional financial regulations, run on open-source code and publicly-verified by a collective of peer-to-peer operators. Bitcoin is the anti-currency which has adopters rubbing their hands, as much as it has regulators scratching their heads – but nobody’s quite sure if it’s the currency of the future yet.

The currency itself doesn’t actually exist – the only quantifiable element is a transaction record generated once bitcoins are sent and received. When you transact with bitcoins, you’re not actually exchanging a currency – you’re shifting value around. Unleashed on the web by Santoshi Nakamoto in 2009, the Bitcoin protocol dictates that there can only ever be 21 million bitcoin in circulation at any time. The theory is that this is a built-in value stabilizer, but the currency’s value crash from $1200 to $250 during 2014 was an indication of the exact opposite – the incredible volatility that makes it an efficient transactional tool, but a weak investment.

Bitcoin in SA

South African online payment enablers PayFast are the first local company to offer bitcoin as a payment option – and by extension, their clients like Takealot can now take advantage. PayFast themselves partnered up with bitcoin exchange BitX to facilitate Rand-based payments for products and services. PayFast Head of Marketing Werner van Rooyen explains: “Bitcoin is stored in a wallet. While most consumers receive bitcoin into their wallets either by buying bitcoin or getting it transferred there from another wallet, the PayFast system allows them to send their bitcoin to a wallet managed via the partnership with BitX, where it is instantly converted into the Rand equivalent, which PayFast then pay over to the merchant. With our partnership with BitX, the risky elements of accepting bitcoin are taken out of the equation, but with the benefits of speed and low fees”.

It’s easy to get mired in the technicalities of how Bitcoin – the protocol and bitcoin – the currency, work, but van Rooyen says that shouldn’t be a detracting factor. “My personal opinion is that the Bitcoin protocol shouldn’t be the consumer focus or concern: people make countless transactions each day using methods that just work. Few people understand what happens when someone swipes a credit card and just exactly how the value is transferred from the buyer’s card to the merchant’s bank account, but the potential of the network is truly immense”.

Developing Tech

Van Rooyen says that although Bitcoin remains a developed market solution, it’s important to remember that the technology is still in its infancy. “The Internet also didn’t just pop up overnight and had its own share of crashes and criticisms. We are at very early days of development with Bitcoin and it would be foolish to ignore the potential that it has to offer. On the other side of the argument, I also think that a lot of people got slightly carried away, expecting the value of crypto currencies to go to the moon and that their investments would just keep growing. A lot of people were looking for a revolution, whereas Bitcoin, as all technological advances, is ultimately an evolution”.

In terms of the South African context, van Rooyen sees crypto-currency networks like Bitcoin as a potential solution for the unbanked, once the applications that allow access, make things more user-friendly. “The World Bank estimates the remittances market to be $540 billion by 2016. Bitcoin allows for the transfer of value at a fraction of the cost – currently estimated by the World Bank at 8% of the amount sent, whereas with Bitcoin it usually is between 0 and 1% at present. Transactions also take minutes, rather than days,” says van Rooyen. Another area Bitcoin could assist with, is low-value payments. “It costs merchants a fair amount to allow their customers to pay them using the card networks. There’s a fixed and a variable amount that merchants have to pay on each transaction. For smaller entrepreneurial ventures, those fees are in the 3%-4% range, with some fixed costs associated with those transactions too, which ultimately just get paid by the consumer. This often makes it unsustainable or very expensive to complete low-value transactions using current mechanisms – a problem eased with Bitcoin’s low administration costs. Costs come into play when bitcoin is ‘mined’ – effectively verifying the transactions – in a mathematically-complex process which sees miners competing for bitcoin rewards, in exchange for verification.

Van Rooyen says that once systems like the PayFast offering make Bitcoin more accessible, it’s only a matter of time before more people in business, banking and finance see what potential it holds. “Using the Bitcoin network, we can utilise the technology and give consumers the choice of how they want to pay, without necessarily needing to take a position on the crypto-currency, or being tied to any of the fluctuations,” he says. “We couldn’t predict what the Internet would ultimately become and I think the same can be said for crypto-currencies. Some of the smartest people in the world are working on and funding the building of amazing solutions using crypto-currencies. It would be foolish to deny the potential that it has”.

*This article originally appeared in Banker SA.