Cryptocurrency: More Than Just a Craze

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Though the bitcoin bubble may appear to be bursting, regulations and innovation could help small businesses in Ireland benefit from what cryptocurrency has to offer. Here's why cryptocurrency is more than just a craze:


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Highlights

  • Between 2012 and 2016, blockchain businesses in Ireland received around €121m in venture capital funding
  • Despite growing interest in the sector, a lack of regulation has led to huge fluctuations in the value of bitcoin and similar currencies
  • Stable exchange rates and faster processing could lead more small businesses to introduce cryptocurrency transactions

Towards the end of March, the minister for finance, public expenditure and reform, Paschal Donohoe, published a discussion paper proposing the creation of Ireland’s first working group to monitor developments in the cryptocurrency space. The paper, ‘Virtual Currencies and Blockchain Technology’, was launched with the aim of eventually providing a regulatory framework both for virtual currencies and for blockchain, the technology that underpins them.

Even though cryptocurrencies have captured the attention mainly of investors since bitcoin launched in 2009, they can also be used to purchase tangible assets. In Ireland, a number of small e-commerce businesses have offered cryptocurrency as a payment option in the past, but these currencies have yet to enter the mainstream because, as with any relatively new technology, regulators have been slow to catch up.

The lack of regulation thus far has meant that the prices of cryptocurrencies have fluctuated wildly. Bitcoin rocketed to an astronomical high in December, before crashing, and there’s no shortage of commentators ready to give bitcoin its last rites, expecting its bubble to burst.

The volatility surrounding cryptocurrencies recently led the payment processor Stripe to announce that it would end its support of bitcoin on 23 April. The company – founded by two brothers from Limerick – said that, due to the price fluctuations, bitcoin had become more of an asset than a means of exchange, and so was becoming less useful for payments. It added that it would continue to monitor the cryptocurrency ecosystem and hoped to offer bitcoin as a payment option again once the price had stabilised.

Why Ireland is ripe for innovation

While regulations could help bring stability to the prices of cryptocurrencies, the Department of Finance’s plan to set up a working group could enable the coordinated development of policy measures. This in turn might encourage and promote innovation in the cryptocurrency sector.

Ireland boasts a thriving blockchain community, which makes it well placed to realise the true potential of cryptocurrency and use it to stimulate growth and create economic opportunities, according to Noel Mulkeen, a blockchain advocate and director of consultancy firm Zomond.

Virtual Currencies and Blockchain Technology, the discussion paper published in March, reveals that an estimated 6.3% of venture capital invested in Ireland from 2012 to 2016 went to blockchain businesses. They received $150m (€121m) in total funding, second only to the UK, which received around $500m (€404m) in the same four-year period.

 

“More customers are wanting to know what bitcoin is exactly and how it works. It’s become a great topic of conversation”

Daniel Kavecky, Director, People’s Restaurant

 

While not all of the entrepreneurs and start-ups in the blockchain community deal with cryptocurrencies, they are in a position to help businesses reap the benefits of the technology, says Mulkeen, who spoke at an Ulster Bank event on cryptocurrency held in Sligo last November.

“Events such as hackathons can play their part in driving innovation,” he says. “They can bring a mix of talent and skills together, leading to new ideas and, sometimes, unexpected results.”

Why innovation will drive adoption

A likely impact that innovation will have is ironing out the challenges that cryptocurrencies currently present, which might be holding some businesses back from adopting the technology and accepting virtual payments.

Nash Basel opened Crypto Cafe in Dublin in February. The cafe accepts ethereum and litecoin from digital wallets on smartphones, and averages between four and six cryptocurrency transactions daily. Despite the early success, the time it takes for a payment to be processed leaves much to be desired.

“Payment settlement times give me, the merchant, the most trouble,” Basel says. “I’ll hope every payment goes through without a glitch, but there are risks, such as the sender can cancel any time after I’ve accepted the payment and before the final confirmation. Even the slightest disruption in internet connection can lead to a transaction failing.” He adds that payments generally can’t be disputed once they’re confirmed, so there is no risk of chargebacks, unlike with credit and debit cards.

Once issues such as payment settlement times have been addressed, cryptocurrencies are likely to become an attractive proposition to more small business owners, who are always looking to create a frictionless customer experience, says Basel. The benefit of using virtual currencies is that every transaction is completed and stored using a distributed ledger on a peer-to-peer network that is anonymous, transparent and without a central authority. These transactions are verified in the blockchain.

Furthermore, if regulations can bring stability to prices, this could lead to reasonably low transaction fees for merchants, Basel adds.

How small businesses can help increase public awareness

Nevertheless, cryptocurrencies are only likely to enter the mainstream if the public are willing to embrace and pay with them.

A clear regulatory framework could go some way to reassuring sceptical consumers about what protections are in place when dealing with virtual currencies. Small businesses can also play a role in educating people, says Daniel Kavecky, the director of People’s Restaurant in Cavan, which has been accepting bitcoin payments since the end of last year.

“Very few customers have actually paid with bitcoin so far,” says Kavecky. “However, what we’re finding is that more are wanting to know what it is exactly and how it works. It’s become a great topic of conversation for our diners and staff.”

Kavecky believes that the visibility of ‘Bitcoin accepted here’ and similar signs on high streets and in eating and drinking establishments will help to stimulate debate, create awareness and have a positive influence on opinion. Whether cryptocurrency will become as ubiquitous as credit and debit cards is open to debate.

“Cryptocurrencies aren’t going to replace plastic cards altogether,” says Basel. “However, they will become a real competitor that cannot be ignored [by small businesses], and they will almost certainly be widely adopted once the technology has been perfected.”

Over to you now. Has your business worked with cryptocurrency? Tell us your experience in the comments below. 

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