Bitcoin: is Circle the world's first crypto-currency bank?
New digital service aims to become your friendly local Bitcoin bank, but customers may prove sceptical
BITCOIN took a tentative step towards the mainstream today as a new bank called Circle opened its virtual doors to users of the currency, but analysts say it may have a hard time attracting users.
The Boston-based financial services company will allow users to deposit currency and see it converted instantly to Bitcoin without any fees. Users will then be able to use their account to make transactions. Circle says that it aims to make Bitcoin easier to use for real-world purchases; at present, the cryptocurrency tends to be used primarily as an investment.
"The focus is on making this easier for people to adopt," says the company's CEO, Jeremy Allaire.
"There have been a lot of barriers and friction and complexity to digital money formats over the past year or so. What we've tried to do with the service is remove a great deal of the complexity."
According to TheNextWeb's Josh Ong, Circle is hoping to do for virtual currency what Skype did for video phone calls. "Circle is utilising the benefits of Bitcoin – instant, secure, global and free – to help customers store money and make payments", Ong says.
To use the service, customers will need to link their bank account, credit card or debit card and add money into their Circle account. They can then make transactions using Circle in any currency without conversion fees. In an effort to assuage people's concerns about storing their money in a virtual currency, Circle displays finances in US dollars rather than Bitcoin.
Still, The Verge's Casey Newton says that Circle may have a hard time convincing people to use the service, because "it remains unclear why the average person would conduct a transaction in Bitcoin instead of cash". But, he says, in the long run there may be some advantages: "Advocates for the cryptocurrency say that merchants may eventually offer discounts to Bitcoin users that take advantage of lower transaction fees".
Yet in spite of the fact that the service offers no immediate advantages, Circle already a sizable waiting list of people hoping to sign up.
The service has raised $26m from investors and has a credible collection of financiers on its board of directors. Its future remains far from clear, but as Newton says, the technology and the philosophy behind it seem inevitable. "Whether it is Circle, or another startup that comes along, we're on the verge of free, instant access to our funds from any device and anywhere in the world".
Who invented the Bitcoin?
The identity of mastermind who invented Bitcoin has been shrouded in secrecy. The concept entered the public domain in 2008 and was credited to a "pseudonymous developer" known as Satoshi Nakamoto. It has been suggested – by Ted Nelson, one of the web's founding fathers – that Nakamoto is the Japanese mathematician Shinichi Mochizuki. That claim has not been verified, but you can read a detailed explanation of Nelson's argument here.
What is a Bitcoin?
This is where things get a bit complicated. According to the currency's Wiki page it's an "experimental, decentralised digital currency that enables instant payments to anyone, anywhere in the world. The Daily Telegraph says that a "full explanation" of Bitcoin and how it works, "would take several thousand words". A rather more concise description, the paper says, is a "currency that only exists in cyberspace, with holders storing their stash in a virtual 'wallet' and making transfers over the internet." ABC News offers an even briefer description: "If hard currency is like a record, then Bitcoin is like an MP3."
Where do you get Bitcoins?
The world's first Bitcoin ATM opened in Vancouver on 1 November. The machine allows "users to exchange their credits of the digital currency for cash and vice-versa," says the BBC. If you don't want to trade hard cash for Bitcoins, you can "mine" new ones.
How do you mine Bitcoins?
You won't need a shovel. Bitcoins are "hidden amid a complex encrypted computer program", explains ABC News. Users have their computers "working round the clock to solve a complicated mathematical problem in order to release new coins". Of the 21 million possible Bitcoins, about 11 million have already been unearthed. You can also mine coins using your smartphone, says Know Your Mobile - but don't expect quick returns. Eight hours of running a Bitcoin-mining app, unearthed just 0.0005 coins. That's because finding new coins requires enormous amounts of computing power which has led some hackers to take over unsuspecting users' machines to harness more power. The Bitcoin system is designed so that the work required to find new Bitcoins rises steadily as each coin is uncovered. "That makes the currency's growth rate, also known as inflation, steady and predictable," says ABC News.
How do you spend Bitcoins?
If you want to buy something using Bitcoin you need to make sure the seller accepts the cryptocurrency. If they do, you acquire the anonymous identification number attached to the seller's 'wallet' then move coins from your virtual wallet to his or hers. The "anonymity" of these transactions has made the currency particularly popular with drug dealers, says ABC News.
Will Bitcoin replace existing currencies?
That's a big question. The Telegraph suggests Bitcoin does present a serious challenge, saying: "Unless the issues that Bitcoin raises are addressed in a thoughtful and proactive manner by existing authorities, the disintermediating power of technology is likely to have a disruptive impact on currency systems and those that regulate and rely on them". Simon Johnson, a professor of entrepreneurship at MIT's Sloan School of Management, told Mashable that a Bitcoin "backlash" is likely as "governments and established financial institutions" fight to retain their supremacy. Bitcoin will "face political pressure and aggressive lobbying from big banks because of its disruptive nature," says Johnson. ·