1) While Bitcoin and other cryptocurrencies still face challenges around regulation and perception, their use for payments is growing as more major brands accept them. 2) A company called BitPay processes payments for over 52,000 merchants accepting Bitcoin, showing its increasing commercial viability despite still making up a small portion of overall transactions. 3) For cryptocurrencies to truly threaten traditional currencies, their regulation, stability, and consumer adoption would need to significantly increase.

1. March | April 2015 | paymentscardsandmobile.com
in this issue
Card Notes
UK shuns cash as cards dominate
payment market
crypto-currency
Bit by Bitcoin: Decrypting
crypto-currency
m-payments
m-commerce skyrocketing
Advanced Payments
Apple turns payment opinion on its head in
2015 and creates long-awaited momentum
for digital commerce

2. crypto-currency
payments cards and mobile | March | April 2015 www.paymentscm.com18
The majority of merchants that accept
Bitcoin operate online, often selling digi-
tal goods. Increasingly however, big name
brands are offering Bitcoin as a means of
payment – Microsoft started accepting
Bitcoin payments from customers buying
apps, games and videos from online stores,
while Japanese retail conglomerate Rakuten
announced at the MPE event in Berlin this
year that it is expecting the company will
start accepting Bitcoin from retail customers
by the Spring of this year.
There is still some way to go before virtual
ingly beingbackedupbycommercialreality.
Speaking to PCM, Tony Gallippi, founder
of BitPay, a merchant acquirer for merchants
that want to accept Bitcoin, said that the
company already has more than 52,000
legitimate merchants on their books since
they launched in 2011 – a little over half the
global market of the just over 100,000 mer-
chants that currently accept Bitcoin.
“When we started there was a lack
of tools for merchants to accept
Bitcoin. So we built a payment
gateway for merchants, along with
full settlement and processing
abilities. The business case was
proven pretty quickly – within 18
months we had signed up more than
1200 businesses to allow them to
take Bitcoin as payment from their
customers,” explained Gallippi.
While there are an ever-growing number
of other digital currencies in existence (see
box), Bitcoin currently accounts for around
95 per cent of all digital currency trans-
actions. Transaction volumes across the
Bitcoin network doubled in 2014 – a rate
of growth is expected to continue in 2015,
making virtual currencies an increasingly
viable means of payment.
A
t a payment industry conference in
Riga around four years ago a speaker
from the Bitcoin Foundation was
extolling the virtues of a new form of cur-
rency that allowed users to be totally anony-
mous and was increasingly being favoured
by individuals at the shadier end of com-
merce – from drug dealing to money laun-
dering and prostitution. Understandably,
given the audience at the event a number
of delegates were left a little perplexed as to
the relevance of the speaker.
Given the background to the take up of
Bitcoin, among other virtual currencies, it
would be fair to say that cryptocurrencies
have suffered from something of an image
problem. An image problem that continues
to persist with the seemingly daily news of
Bitcoin exchange hacks and subsequent
closuresandfrauds,alongsidethecontinued
use of virtual currencies among criminal
groups taking advantage of the presumed
anonymity they offer.
However, in spite of the continued dis-
missal of virtual currencies by mainstream
commerce and much of the payment indus-
try, the far-reaching implications of a suc-
cessful digital currency with the potential
to open the doors to genuine cross-border
trade at lower cost, and without the risk of
foreign exchange fluctuations, are increas-
Such is the fervour around virtual currencies, that barely a day
goes by without some form of news or announcement about
the growth and threat of digital currencies but what is the
reality behind the scaremongering? And how much of a threat or
opportunity is the growth of these new forms of digital money?
by Simon Hardie
BitbyBitcoin:Decrypting
crypto-currency
Bitcoinalternatives
Litecoin – 2nd largest, launched 2011
Darkcoin – a more secretive version of
Bitcoin launched 2014
Peercoin – launched 2012, with no
upper limit on coins in circulation
Dogecoin – uncapped supply and
geared for smaller transactions
Primecoin – offers greater security and
ease of mining
Altcoins – alternatives to Bitcoins
Blockchain – the ledger storing details
of Bitcoin transactions

3. crypto-currency
www.paymentscm.com payments cards and mobile | March | April 2015 19
recession, as central banks in the US, UK and
Japan have been doing since 2008, a return
to a virtual gold standard currency would
have far-reaching consequences.
In light of the increasingly global, cross-
border nature of business and particularly
of online commerce, however, the gradual
legitimization of alternative currencies such
as Bitcoin marks the beginning of the trans-
formationofmoneythathasuptonowbeen
defined along strictly national lines.
The Bank of England’s announcement
at the end of February that it is reviewing
options for launching its own digital cur-
rency is perhaps a sign of just how seriously
regulators and central banks perceive the
challenge to their own currencies. Another
commentator even remarked that a virtual
currency could be the solution for Greece if
it were to leave the Eurozone.
Ultimately it could be emerging markets
that become the driving force in take up of
virtual currencies, given the right conditions.
Currently the majority of Bitcoin activity
is centred in the US and Europe, but with
Africa’s success in creating a viable mobile
payment marketplace as a benchmark, the
continent’slackoflegacypaymentandbank-
ing infrastructure could present a significant
opportunity for a regulator with the right
approach to currency regulation.
There are significant barriers to overcome,
however, before this is likely to be a reality
in Africa or elsewhere. While the benefits
to merchants are more obvious, changing
consumer behaviour sufficiently that digital
currenciesareviewedasviablereplacements
for existing forms of payment is more com-
plex, and will take much longer, particularly
inthewakeofhighprofilescandalsinvolving
theft and Bitcoin fraud.
At the same time, as the number of digital
currency transactions grows, along with the
number of merchants accepting them, cryp-
to-currencies such as Bitcoin are becoming
less and less virtual and more like traditional
currency. A fact that is also being acceler-
ated by the introduction of (albeit only a
small number) of Bitcoin ATMs in the US.
With no accepted form of storage of Bitcoins
or any other digital currency yet available,
consumers are exposed to the risk of theft of
currencies become a genuine threat to stan-
dard forms of electronic payment.
As with other forms of advanced
payment, the challenge for virtual
currencies is to drive adoption
when, from a consumer point of
view, existing forms of (mainly
card-based) payments work
satisfactorily. A point that, in
the case of virtual currencies,
is compounded by the percep-
tion of them both as complex
and at the margins of main-
stream commerce.
Vaughan Collie, partner at
payment industry consultancy
Accourt explains, “There’s no doubt
that there are clear advantages
to the merchant, but for crypto-
currencies to achieve ubiquity
is going to require a number
of elements to come together,
not least of which is much more
effective regulatory scrutiny within
a yet to be created set of regulatory
frameworks.”
More coordinated oversight of digital cur-
rencies is a crucial aspect if they are to
gain widespread adoption, and not purely
because of market perception.”
An outcome that would not only help
improve the image of digital currencies
but would also ensure greater trust in them
as units of real, rather than virtual, value
and help to reduce the extreme volatil-
ity that the likes of Bitcoin have suffered in
recent months. Bitcoin values for example
plummeted from over $370 per Bitcoin in
November 2014 to around $250 by the
beginning of March this year.
The potential for mass take-up of alterna-
tive currencies, however, is nothing short
of a budding headache for both regulators
and consumers. With no one yet sure what
will happen once the magic number of 21
million Bitcoins in circulation is reached –
the maximum number permitted in the
blockchain – and with a currency that is not
centrally managed by any one regulator so
that the money supply could be eased in a
the Bitcoins they have stored on their PC or
other device. A dilemma that will need to be
resolved to drive mass take up and ensure
consumers of the safety of holding large
amounts of digital currency.
Unsurprisingly, given the current climate
of fintech fever, there are a number of solu-
tions in development already. UK digital
currency bank start-up Ripula.co.uk is one
of these. The company’s founder, Oliver
Mitchell, is currently in talks with investors in
Silicon Valley to fund expansion and market-
ing of a cloud-based platform that would
effectively act as a digital bank, holding
accounts for customers to store and trade
any digital currency.
There’s a long, long way to go before any
virtual currency represents a serious threat
totheexistenceofanyoftheworld’snational
currencies, or even a serious alternative to
the Visa, MasterCard scheme-dominated
consumer payment system. What is more
certain, however, is that the continued
growth in use and acceptance of crypto-cur-
rencies will be one more innovation that will
contribute to consumer adoption of forms
of electronic money and payment and to
another step away from cash. Small wonder
then that western regulators are scratching
their heads in response. ■
Virtualcurrencynumbers
150+
crypto-currencies in existence
$3.3 billion
Bitcoin market capitalisation
43% drop
in value of Bitcoins between December
2014 to March 2014
110,000+
number of merchants accepting Bitcoin
13.9 million
Bitcoins in circulation (March 2015)
28 million
Bitcoin transactions (year to March 2015)