Bitcoin, the virtual cryptocurrency, has gone from a murmur to a rumble. We talked to Timothy Stranex of BitX, a local Bitcoin exchange, about the internet’s next big thing.
Q: With guys like the Winklevoss twins involved, is Bitcoin the investment of choice for the tech savvy?
A: Bitcoin is certainly quite popular in the tech community. Venture capitalists in Silicon Valley are very excited about Bitcoin and have begun investing in Bitcoin companies. The premise of these investments is that Bitcoin will become more mainstream over the next few years, and that it will ultimately be most useful as a transacting tool (as opposed to an investment only).
We are already seeing signs of it becoming more mainstream as more businesses across the world adopt Bitcoin as a form of payment. Some hedge fund managers have expressed interest recently, so there are also other groups that are getting involved.
Q: How big is Bitcoin locally?
A: This is difficult to measure given that local Bitcoin trades may take place both online and offline. One also needs to consider that many people here hold Bitcoins as an investment but don’t actively trade them. As an initial data point, there were more than R400k worth of Bitcoin traded last month on BitX, but the overall market will be much larger than that. There are also several people starting Bitcoin-related businesses, with a list of merchants accepting the currency here: bit.ly/bitcoinza.
Q: How can people purchase Bitcoins through BitX?
A: People can buy Bitcoin on BitX by registering, submit their FICA information, and then placing a trade order. The trade is settled by sending an EFT via internet banking. Once the funds clear, BitX sends the purchased coins to the user’s Bitcoin wallet.
Q: We have heard comment that it's the volatility of the Bitcoin currency that might be its biggest problem. What's your opinion?
A: The volatility is a challenge, however several businesses exist (such as BitPay and Coinbase), that allow merchants to set prices in USD and lock in the conversion rates so that the merchant isn’t exposed to the risk. So it’s not a major problem in practice.
It’s important to realise that the Bitcoin market is still very small. The total amount of Bitcoin traded each day is around $20 million. By comparison, the daily trading volume on the global forex measured in the trillions of dollars. As the Bitcoin market becomes bigger, it will become less volatile.
Q: While Bitcoin touts anonymity as a positive, buying Bitcoins through BitX requires FICA registration. Is this standard operating procedure?
A: Yes, all reputable Bitcoin exchanges around the world now follow KYC (Know-Your-Customer) and AML (Anti-Money Laundering) regulations, such as FICA, to prevent abuse of the Bitcoin by criminals.
It is still more anonymous that using a credit card to buy something from a merchant, since with Bitcoin you don’t need to share your name with the merchant. However, it’s not anonymous from a law-enforcement perspective because all Bitcoin transactions are recorded and is publically available, making transactions open to investigation and auditing.
Q: Do you foresee Bitcoin becoming a global currency or will it remain mostly online?
A: While there are certainly some short-term challenges, given the technical advantages of Bitcoin and witnessing the increased adoption rates across the world, we foresee Bitcoin becoming a global currency in the long run.