Skip to main content
Part of complete coverage on

Can Bitcoin replace PayPal?

December 10, 2013 -- Updated 1653 GMT (0053 HKT)
Bitcoin is an experimental digital crypto-currency unregulated by a central bank where its value -- like many real-world currencies -- is determined by how much people are willing to use it. Here, software engineer Mike Caldwell of Sandy, Utah holds physical Bitcoins he minted in his shop in April this year. Bitcoin is an experimental digital crypto-currency unregulated by a central bank where its value -- like many real-world currencies -- is determined by how much people are willing to use it. Here, software engineer Mike Caldwell of Sandy, Utah holds physical Bitcoins he minted in his shop in April this year.
HIDE CAPTION
What is Bitcoin?
How do you get them?
Behind the Bitcoin
Everyday uses
Legitimizing the virtual cash?
The rise of bitcoin
The rise of bitcoin
The rise of bitcoin
The rise of bitcoin
The rise of bitcoin
<<
<
1
2
3
4
5
6
7
8
9
10
>
>>
STORY HIGHLIGHTS
  • Bitcoin has generated a cult-like fervor amid reports of increasing value
  • Market volatility, government backing remain barriers, say analysts
  • Enthusiasts say Bitcoin is future of online shopping

Going Global showcases entrepreneurs taking their businesses around the world, tackling issues like business strategy, marketing and international logistics.

(CNN) -- When Bitcoin's architect first unleashed the idea of creating a decentralized virtual currency on the internet, the tech-savvy elite sat up and listened.

That was in 2008. Just a year later, operating under the pseudonym Satoshi Nakamoto, the unknown developer took the concept live. By year-end, over 1.6 million bitcoins had been mined.

Bitcoin documentary in the works
Bitcoin buzz
Has Bitcoin's bubble already burst?
How bitcoins work

Since then, the meteoric rise of the digital currency has continued to capture the world's attention as financial institutions now examine its viability.

At a time when many have lost faith in the global financial system, Bitcoin is being hailed as the future of e-commerce.

"It's lower cost, lower risk and a more accessible form of payment from anything else we have today, especially for shopping online," says Tony Gallippi, founder of BitPay, a Bitcoin payment processing service.

"Credit cards were designed in the 1950s and were never designed for the Internet. It leads to issues like identity theft and payment fraud."

Gallippi -- who recently testified before a U.S. Senate committee on the growth of Bitcoin -- explains that the virtual peer-to-peer currency was created to be "borderless by design," thus opening the door to the international marketplace for smaller merchants.

Internet's currency of choice

The anonymity of the currency is also a plus for Bitcoin users as no verified personal data is required for making online transactions. This has led many to speculate that Bitcoin will be mainly used for illegal online transactions.

"For small businesses that have unique items, it really opens up their business to a truly worldwide customer base ... It's going to become the default payment system for the internet by the end of this decade," adds Gallippi.

While Bitcoin's electronic nature makes it appealing for e-commerce, Gallippi acknowledges that there are still some kinks in the system that need to be ironed out.

"Tax implications and potential regulation are some obstacles we face ... the other issue is that perhaps [Bitcoin] is not quite ready for mainstream consumers just yet.

"I think we've got quite a bit more work to do on the engineering side ... But I would expect Bitcoin will soon become the preferred method of payment for connecting businesses over the Internet," predicts Gallippi.

"It's going to become the default payment system for the internet by the end of this decade.
Tony Gallippi, founder of BitPay

The implications for e-commerce from the Bitcoin experiment continue to intrigue economists and financial analysts as some believe the crypto-currency could revolutionize the global marketplace.

Bitcoin to replace traditional banking?

"For more conventional businesses, I think the advantages are really in international commerce," says Tom Elliott, director for the Emerging Markets Communications Strategies service at Strategic Analysts.

"You have significantly reduced transaction costs compared to converting one international currency to another international currency -- it's typically cheaper."

Meanwhile, Jon Rushman, an economist and professor at Warwick Business School says: "The brilliance behind the technical design of Bitcoin is the fact that the mechanism for payment is a distributed network. No one owns it. It doesn't run in a data center owned by PayPal or Mastercard or Visa."

The added bonus? No middlemen taking a cut from the transaction, he says.

Rushman explains the currency's recent surge is largely responsible for grabbing the financial world's attention.

With bitcoin now reaching prices equivalent to an ounce of gold, more investors are turning toward the digital currency for a return on investment.
Getty Images

Erratic price value

In January 2013, one Bitcoin was worth around $13, surging in November to a staggering all-time high of $1,242 -- almost the same price as an ounce of gold. But since then, its value has dropped again to around $925, according to Mt.Gox exchange rates.

And, according to Rushman, Bitcoin's erratic fluctuation is exactly what deters some businesses from adopting the currency: "You wouldn't want to reprice every article in your shop everyday, which is why we like standard exchange rates."

"[If] you're a retailer and you carry £100 ($164) in your till overnight, normally you're not really worried about the fact that it's going to still be £100 in the morning.

"Traders don't want volatility in the currency that they are taking in.
Jeremy Cook, Chief Economist at World First

"It could indeed become the system of payment [online], but it has to get over this hurdle of volatility. You have to bridge that gap between what we trust today and the type of thing we might trust tomorrow."

But while some tout Bitcoin as the future of online shopping, others are describing it as the latest monetary fad.

Jeremy Cook, chief economist at UK-based foreign exchange firm, World First, says Bitcoin is a mere internet affectation.

"It still appears to be a very niche payment option ... until the volatility calms down, the use of it as a payment method -- to buy shopping, a house, a car, send children to university for example -- is going to be very, very limited.

"Traders don't want volatility in the currency that they are taking in. They don't want additional cost," he adds.

The China conundrum

Despite these concerns, some central banks have begun to throw their weight behind the virtual currency.

Quick vote

Would you use Bitcoin?

Germany announced it recognized Bitcoin as "private money" -- but until more central banks, like the U.S. Federal Reserve, back it, Bitcoin will remain a niche digital payment option, warns Cook.

One key country that Bitcoin enthusiasts and analysts have been closely watching is China.

"The Chinese are the big, big domino to fall. If the Chinese get behind it, then it will become a part of an Internet revolution," says Cook.

But last Thursday the People's Bank of China placed a ban on financial institutions handling the money after stipulating that the virtual cash had no legal status.

With yet another hurdle now in place for Bitcoin, Cook believes its widespread adoption is a little optimistic.

"Certainly, you can believe that the future of Internet commerce will involve these kind of instantaneous payment methods. I have no doubt about that -- but people want simplicity.

"At the moment, the Bitcoin experiment doesn't offer simplicity. It complicates matters by people having to understand another way of doing things."

Infographic: What is Bitcoin?

ADVERTISEMENT
Part of complete coverage on
December 10, 2013 -- Updated 1653 GMT (0053 HKT)
At a time when many have lost faith in the global financial system, Bitcoin is being hailed as the future of e-commerce.
December 3, 2013 -- Updated 1518 GMT (2318 HKT)
wine glasses
Global wine production is booming with vineyards springing up everywhere from China to the United States, Chile and New Zealand.
December 3, 2013 -- Updated 1601 GMT (0001 HKT)
When David Beckham was spotted in the Macau crowd at Manny Pacquio vs. Brandon Rio fight many assumed he was there just as a boxing fan.
December 2, 2013 -- Updated 1445 GMT (2245 HKT)
The mobile landscape is vastly different from just a few years ago. Today everything is connected.
The world is undergoing a mobility transformation. Since Apple launched the first iPhone in 2007, more than 100 billion apps have been downloaded from app stores by consumers worldwide.
November 25, 2013 -- Updated 1148 GMT (1948 HKT)
In the age of personalization, a Finnish company is bringing 3D technology to the world of bespoke men's footwear.
November 18, 2013 -- Updated 1329 GMT (2129 HKT)
Louis Vuitton unveiled their
With online-shopping on the rise, enticing customers in-store is increasingly difficult, spurring retailers to dream up new ways to woo shoppers.
November 6, 2013 -- Updated 1359 GMT (2159 HKT)
French fries are shown in a McDonald's restaurant on First Avenue September 3, 2002 in New York City.
A new chapter in the fast-food wars was created with Heinz hiring Bernardo Hees, former Burger King CEO, to lead its company.
October 18, 2013 -- Updated 1531 GMT (2331 HKT)
Tourist guidebooks are displayed at the stand of China
The decline of print and rise in peer-reviewed websites are giving publishers a big headache. So how do you find an edge in the crowded marketplace?
October 14, 2013 -- Updated 1043 GMT (1843 HKT)
When the love child of the doughnut and the croissant was created in New York, fans queued for hours to sample the tasty hybrid snack.
November 22, 2013 -- Updated 1739 GMT (0139 HKT)
Savvy companies like Red Bull are turning to multi-pronged social media recruitment campaigns to unearth hidden talent.
October 4, 2013 -- Updated 1252 GMT (2052 HKT)
The World Bank's most recent report that ranks economies for ease of startups. Find out which country is the easiest to launch your business empire.
October 4, 2013 -- Updated 1255 GMT (2055 HKT)
What happens when you take a few startups and add academics, business execs, a Nobel Peace Laureate and put them on a ship?
October 4, 2013 -- Updated 1254 GMT (2054 HKT)
Entrepreneurship is an important key to the world's economies, writes author Beverly Schwartz.
CNN Going Global
See the full coverage of CNN's Going Global, a show highlighting entrepreneurs taking their businesses around the world.
ADVERTISEMENT