The Bitcoin Hype Is a Sign Of Real Change

Sean Michael Kerner

Bitcoins have benefited from hype and noise, But Sean Michael Kerner finds they are a sign of a change in attitude to money

The Bitcoin cryptocurrency has gained in notoriety today, owing to the arrest of one of its leading entrepreneurs, Charlie Shrem.  At the time of writing this has done little to dissuade investors, as the price of a Bitcoin is still more than $800 (£482). But what is the true value of Bitcoin, and who should consider adopting it?

Bitcoin’s true value today can be found in what it says about the state of money and payment in the modern connected world, said David Furlonger, vice president and Fellow at research firm Gartner.

Bitcoin (c) Julia Zakharova, Shutterstock 2014

Overhyped noise – in a good way?

“Bitcoin is a massively overhyped piece of noise in the marketplace in and of itself,” Furlonger told eWEEK. “That said, it evidences something more fundamental, which is a shift in the notion of how value is calculated and how value is transferred between entities.”

What Bitcoin represents to the future of money is somewhat different from the shift that Paypal helped pioneer at the beginning of the e-commerce era, Furlonger said.

Now owned by eBay, Paypal got started in 1998 as a way to electronically transfer and accept payments online.

“Bitcoin is fundamentally different; it’s not a payment mechanism per se,” Furlonger said. “Bitcoin is a currency and should be compared with other cryptocurrencies.”
Bitcoin value is stored in a digital wallet, which is not a payment mechanism itself, Furlonger said, adding that there is a lot of confusion in the media about the use of the terms “digital wallet, “digital payment” and “cryptocurrency”—which are often used interchangeably when, in fact, they are distinct activities.

The digital wallet is the storage vehicle that can also be a form of identification, the payment system is how value is transferred, and cryptocurrency is the actual unit of value.

Rising interest in Bitcoin is evidence of consumer desire and willingness to use a different form of currency and exchange to conduct daily business. For the most part, Bitcoin holds the highest degree of interest in the retail sector.

“I think you will continue to see, at least at the individual level, people wanting to use payment mechanisms in the context of what they find themselves doing in their daily lives,” Furlonger said.

Those payment mechanisms could include the use of a paper bank note, Paypal, loyalty points from a vendor or Bitcoin. Additionally, people will continue to use different stores of value to capture all their transactions. Those stores of value will include prepaid cards and mobile payment methods.

In Furlonger’s view, Bitcoin is just one noisy part of the continuing change in how payment and value storage options are evolving.

Part of a change in viewpoint

Helping fuel Bitcoin’s hype has been its value in US dollars. Over the course of 2013, major Bitcoin exchanges were trading 1 Bitcoin for $1,000 U.S. In mid-December, the value of Bitcoin fell dramatically after news that the cryptocurrency could not be used in China. Bitcoin’s value has since rebounded, and in 2014, once again hovers near $1,000 per Bitcoin.

Whether a Bitcoin is worth more or less than $1,000 is not easy to forecast and is determined by the market. Value is determined by what the buyer is willing to pay the seller for something at a moment in time.

“To me, the value proposition isn’t so much about the Bitcoin itself; to me, the value proposition is in what the noise surrounding Bitcoin conveys,” Furlonger said. The value proposition is about the disruption that Bitcoin represents in terms of security, methods of value transfer and cryptographic transaction proofing, he added. That said, for those in certain areas of the retail sector, Bitcoin adoption as a form of payment should be considered.

“Merchants clearly have to have a linkage between what they are trying to achieve as a business and their customer base,” Furlonger said. “There will be some businesses that will have no interest in Bitcoin payments or transfer, if their customer base isn’t in that part of the market.”

For retail merchants, Bitcoin represents an opportunity and a challenge. If merchants are unable to accept Bitcoin, but that’s how customers want to pay, the merchant may lose those customers.

“In the current world, it’s not just that customer, but all the people they influence with their network on the Internet,” Furlonger said. “If your customers are in that position, you should be enabling your systems to accommodate a variety of mediums of exchange and the payment systems that go around that.”Furlonger added, “There is a fundamental shift in the market that is taking place in how people are accepting, exchanging and transmitting value.”

Sean Michael Kerner is a senior editor at eWEEK and Follow him on Twitter @TechJournalist.

Originally published on eWeek.