Last week I blogged on Bitcoin transactions, commenting on how they are steadily growing. I did not explore what these transactions were for, but one commentator expressed doubt they were for commerce. I searched around and found this interesting infographic
which does show a variety of uses in regular commerce, with bed linen appearing to be the most popular!
I also decided I would try out some transactions for myself, covering two use cases.
I needed to fund from the UK a bank account I have in France – usually I use one of the P2P international currency transfer websites where the ex rate is close to the market rate, funds are transferred in 24 hours and at a cost of only a few euros. This
time, I split the transaction (several hundreds of GBP pounds) into two. Half using the P2P website, half using a new service I came across which uses bitcoins – you enter the IBAN and euro amount, then you are asked to pay a fixed bitcoin sum. On payment
of the bitcoins, the service transfers euros to the designated bank account. The service’s wallet address is presented in both alphanumeric and QR code form, which was easy to capture in my bitcoin wallet, and the payment was quick to make. The euros arrived
in my French bank account at the same time as those from the P2P transfer the next day.
For the second use case, I took a colleague for lunch to a café near Old Street in London which accepts bitcoins. The café had an iPad on the wall, the staff entered the amount into it, I captured the QR code presented by it in my mobile bitcoin wallet and
paid. The whole experience was seamless, easy and as quick as paying by Apple Pay (except for entering a 4 digit PIN in my mobile Bitcoin wallet).
In both use cases the user experience with the Bitcoin wallet was excellent – easy and quick, taking seconds, even for the cross-border transfer. Whereas for the P2P cross-border transfer, the process was a little clunky. I had to prefund the FX account
with GBP from my bank account requiring to-ing and fro-ing between the two, and waiting two hours for the funds to transfer before I could buy and transmit the euros to France (roll-on the
Faster Payments open access model when any PSP can have direct access to FPS and have guaranteed real-time transfers).
However, in both instances, I noted that paying wuth bitcoins was more expensive. I already had bitcoins in my wallet when I made the cross-border transfer, but I searched the UK websites where you can buy bitcoins, and estimated that had I needed to buy
btc for the transfer, the transaction cost 7.5% more in GBP than the P2P transfer for the same amount, including transmission fees.
Similarly, when I bought lunch, I had bitcoins in my wallet, but I dropped into Google Ventures on the way back to the office to top up with bitcoins at their Bitcoin ATM. Using the ATM’s GBP/btc rate, our lunch cost a full 5% more in GBP terms using bitcoins
than if I had paid in GBP.
This leads me to several conclusions. First, although fast and easy, it is currently more expensive to use bitcoins than sticking with fiat currency. Secondly, for bitcoins to become less costly to use, there needs to be much, much more liquidity – more
ATMs, more exchanges, more volume, more merchant acceptance, for the spreads to narrow. Thirdly, for Bitcoin to be used for payments, it needs to become a borderless, liquid currency, otherwise persistent illiquidity will defeat it. Lastly, a distributed consensus
ledger operating in fiat currencies (such as Ripple) could be a winner in retail payments.
So Bitcoin’s success, certainly for payments, hinges on its liquidity. Last week I noted that Bitcoin volumes are steadily rising, hence Bitcoin is becoming more liquid – it will be very interesting to see how far, and how long this continues.