Depending on who you are, when you hear “bitcoin” any number of ideas may come to mind. Much of the world still has no idea what a bitcoin is or what it does. Closer to tech hubs, some will have a conceptual knowledge of the cryptocurrency but have still yet to use it as an asset or payment method. If you follow the rumors too closely, you may guess it’s the stuff of black markets, a secret form of money used for drug trafficking and money laundering. If you’re one of the now growing audience of enthusiasts and long-time bitcoin advocates — that is, around 2010 onwards — you may believe it is the new fiscal superpower that will finally disrupt the financial status quo globally. Ultimately, every camp has some of the right ideas: bitcoin is still poorly understood by most, it is used for both legitimate and much shadier transactions (as is almost every other worldly currency, and the internet itself), and has the potential to change everything.
The rise of early stage bitcoin startups is evidence that this is a growing market. Bitcoin focused companies such as Coinbase have raised over $100 million in multiple funding rounds since starting just 3 years ago. The company is said to have a valuation of over $400 million, despite those who still question the long term existence of the industry. Some cryptocurrency startups are even funding themselves by selling off their own alternative currencies based on the bitcoin. Sound like a lot to wrap your head around? Here’s a brief intro to bitcoin.
So, Why Does Bitcoin’s Identity Matter?
Today, there are a growing number of merchants doing over $1 billion in bitcoin transactions annually, including national online retailer Overstock.com. As bitcoin rises in popularity and use, lawmakers are starting to establish legislation and regulation to govern bitcoins — often doing so in a way that could have unintended consequences to industry growth simply because so many people still don’t “get” bitcoin. This is especially true of the lawmakers who seek to regulate it, whose understanding is also limited in being able to conceive of how financial transactions in bitcoin will be handled in the future and how this may impact the global economy.
This means it’s up to the bitcoin industry to ensure it clearly defines itself before the disbelievers or even government does it for them. Those who are somewhat familiar with bitcoins often only connect it to highly publicized negative events, such as the collapse of Mt. Gox. Once one of the biggest bitcoin exchanges on the market, Mt. Gox went bankrupt and reportedly lost over 700,000 of its users’ bitcoins — a sum over $600 million. Others affiliate bitcoin with the FBI’s seizure of the online black marketplace Silk Road.
So How Does Bitcoin Find a New Identity?
First, more education is needed about what a bitcoin is. In fact, there is no such thing as a physical bitcoin, as in the image above: the currency exists only digitally, as a bank account total. It’s also important to understand its potential to transform how we exchange currency in the future. Trade associations such as the Chamber of Digital Commerce are leading this charge through educational initiatives to consumers who are interested in learning more about bitcoins, and advocacy to the lawmakers who now want to regulate the industry. These efforts are especially critical for bitcoin startups as they invade the traditional financial industry.
Second, more national and well-known merchants must allow bitcoins to be an accepted way to buy goods and services and promote this currency option their consumers. In the same manner that merchants began to accept debit cards and actually favor them over written checks, merchants must legitimatize bitcoins in order for consumers to view it as a safe and legal way to transmit their money.
And third, as the industry continues to grow, it is important that the regulatory framework be defined and clear in order to prevent another Mt. Gox or Silkroad. Currently, only a few states have started to focus on regulation of the industry but it has received the attention of many federal regulators as well. Though some bitcoin enthusiasts are not embracing the regulation of the industry, especially the early stage startups, the fact remains that bitcoins by themselves involve the exchange of money and consumers need laws in place in order protect their assets. Regulation of bitcoins, however, should not be confused with regulation of the blockchain technology that is used to transmit bitcoins. Blockchain platforms can be used in a number of other innovative ways that do not involve currency and separate rules and regulations need to apply.
Can Bitcoins Recover From its Identity Crisis?
Yes, because the large majority of consumers still do not understand bitcoins and have never used digital currency. Those who are familiar with it associate it with a small segment of scandals that unfortunately occurred during the industry’s infancy stage. Bitcoins and other mechanisms of digital currency are not going away. Over time it can transform currency exchange the same way the internet has transformed how we communicate, conduct business, and shop. The futurists who recognize and embrace the industry must lead the way in redefining and shaping public perception of bitcoins so that it can be accepted as a true and trusted way of exchanging money and buying goods and services in the future.