Co-founder Manuel Heilmann of Coinzone talks about the future of virtual currencies like Bitcoin
The payments landscape is changing. New technologies such as mobile wallets, near field communication (NFC) or ‘tap technology’ and virtual currencies are in the headlines all the time. However, whilst some of these, like Apple Pay, seem to be in the consciousness of consumers and businesses alike, others like virtual currencies, only just seem to be coming out of the domain of online gaming.
So, why do virtual currencies matter? What impact will they have on payments in the years to come and what impact will they have on the financial services and retail sectors? At what point will the future meet the present and what hurdles need to be jumped to do this?
When the founders of Coinzone decided to start a virtual currency business in December 2013, we were and still are intrigued by the opportunities that virtual currencies open up in the long-term. I was fascinated by the opportunity to be one of the first to contribute to the Eco-system of Bitcoin. I did not see the volatility being an obstacle although right at that time the Bitcoin price crashed. I rather had the long-term opportunities in mind and were thinking on what to focus first – vertically as well as geographically.
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I can say 18 months later that I have learned an awful lot and stand by my decision to go where few have gone before. Here are my top 5 reasons why I think that Bitcoin and more importantly its underlying technology has the potential to change the world as we know it.
- Virtual currencies will allow us to see things that we have never seen before
Just like the Internet did in the last 20 years, virtual currencies will allow us to solve problems that weren’t solvable before. It will make unthinkable things possible. Example: Approving a contract between multiple parties by using the Bitcoin Blockchain to validate and approve it. We will be able to process a contract in minutes. We will no longer have to compare documents to make sure that nobody sneaked a change in, print it, get a signature, scan, send an email with the attachment, save the contract in a repository, wait for all parties to sign it and save the final fully executed contract. Just think how much more productive companies will be. I go through this hell every week, and I am looking forward to the moment when I can process a contract through a service that sits on top of the Blockchain.
- Bitcoin is empowering the unbanked to participate in the global financial system
According to Accion’sCenter for Financial Inclusion (CFI), between 2010 and 2020, the world’s poorest 40 percent will nearly double their spending power to $5.8 trillion from $3 trillion. However, more than 50% of world’s adults don’t have a formal bank account according to the World Bank. The need for an efficient and direct transaction or exchange is present.
There are 2.5bn unbanked people in the world. For many of them, remittances from relatives working overseas is a major source of their income. Remittances of electronic transfers, such as Western Union or banks cost an average of 8% to 9% and can be as high as 25% to 30% from people who need it the most. Remittances of electronic transfers are time-consuming. They could take 3-4 days. There are 232 million and growing number of migrant workers transfer about $549bn (2013) back home every year (Source: World Bank).
Bitcoin allows them to receive the remittances paying 2-5% of the transaction amount assuming the payee can spend the Bitcoin at local merchants or convert them to their local currency. There are still hurdles to overcome. The Bitcoin community needs to develop products that enable them to receive and use Bitcoin taking the lack of infrastructure into account such as limited access to internet in certain regions.
- Virtual currencies will replace cash
I am a firm believer that virtual currencies will not replace Credit Cards. There are still many use cases where Credit Cards have advantages.
However, in today’s world, electronic payment methods are not universally accessible. Currently, 85% of the world’s transactions are still done through cash and check, even though almost 66% of people are digitally connected. Electronic transfer is still limited, inconvenient and costly. Travelers have to pay high fees for cash withdrawals, international credit card payments and have to deal with finding an access point.
In European markets, most e-commerce transactions are done through non-Credit card payment methods such as wire, direct debit or invoice. Only about 10% of all online transactions in Germany are processed through credit cards. As soon as I touch German soil, the first thing I do is find an ATM because I will need cash the moment I enter a cab (especially since Uber got banned in Germany). In emerging and developing economies, non-cash payment methods are even more difficult for merchants to establish.
This is where I believe Bitcoin’s real potential is. In the long-term, mobile payments with crypto-currencies will replace cash because it benefits the users and the businesses.
- Virtual currencies create a flourishing startup community in growth markets
It is refreshing to see how Bitcoin has unleashed the creativity of young entrepreneurs in Africa, Latin America and Asia. They see the potential of Bitcoin for their markets, but they also understand better than anybody else the hurdles to reach mass adoption. I believe that Bitcoin, amongst others, will continue to build a flourishing startup community in these markets and create new jobs and hopefully encourage others to follow suit.
- Virtual currencies will disrupt and force financial institutions to innovate
Banks, Credit Cards and other financial services have seen very little innovations in the last fifty years. Bitcoin and other FinTech innovations will force them to invest in innovation and adjust their business models. Some will succeed and others will not. We already see some banks opening up to Bitcoin and other technologies and starting to embrace instead of fighting them.
Some Bitcoin believers may choke when reading this, but I believe that Bitcoin will have a greater chance to succeed if the Bitcoin community collaborates with the existing financial institutions to develop services that benefit both. Banks and insurance companies can provide services that will facilitate mass adoption of crypto-currencies and give users the necessary confidence to store and use Bitcoin.
I understand that there are risks to be balanced. It is up to each country and financial institution to assess the potential in each new payment technology that comes their way. Those banks and payment service providers that tackle and overcome potential risks and harness blockchain technology will reap the rewards that first mover advantage can bring.
So far the large majority of banks have failed to do this with many choosing to exclude virtual currencies as a matter of policy. However, I’d challenge whether the banking sector can really afford to do this in a world of social and digital change? With so many other payment services providers and services, such as Apple Pay and Paypal, going from strength to strength, inertia can be as dangerous as risk avoidance for an institution.