Digital cryptocurrencies really came to the fore in 2013, but with the New Year now upon us, can this form of payment really challenge the global market leaders?
Last year saw the value of a single bitcoin rise from $13 to $1,000 at its peak, as it fluctuated massively in value.
The concept that it could be used as an international means of transferring money is a viable one, but one considerable issue exists currently – not enough businesses accept it as a payment form.
As a result the digital coins would need to be converted into local currency before they would be of any real use.
While transferring bitcoins cannot be regulated, converting them to alternative currency can be and some countries, including China, have already placed a ban on financial conversions.
This means Bitcoin could struggle to compete with other industry leaders as they are limited by the number of transactions they can complete.
Should other countries also decide to prevent transactions, then issues could arise.
To be successful, bitcoins would need to be accepted directly by businesses and to date very few are actually doing so.
Even the few that do are being dismissed as marketing gimmicks, making it very difficult for the currency to make a breakthrough.
An alternative to bitcoins is to use prepaid cards for transactions as they limit the amount that can be spent and provide a certain level of security. It is for this reason, amongst others, that this unique form of payment has becoming increasingly popular across the globe.
A major competitor for the bitcoin experiment is money transfer company Western Union, which is well entrenched in the sector after recording revenue of $5.6 billion in 2012.
To put things in perspective, spending on regulatory compliance alone will probably total around $250 million this year – just somewhere between 3.5% and 4.5% of its total revenue.
Even with a drop in shares in the back end of 2013, Western Union remains well-placed in the money transfer market, leaving Bitcoin with a very small window of opportunity in which to make a difference.
Time will tell if Bitcoin will be accepted into more transactions, but it will have to break through the significant defences of the leading companies if it is to truly make a difference. This is the only way in which the mainstream public will view it as a credible alternative, although the concept still has time on its side.
Expert Comment: The rise in the value of the Bitcoin is truly unprecedented and that has all to with the economics of supply and demand. The vast majority of consumers continue to be sceptical about the future of Bitcoins but there is definitely intrigue & interest and it is not too long back that prepaid cards were viewed with the same degree of scepticism. Interestingly, a few prepaid cards providers have added Bitcoins as a valid mechanism to load prepaid cards already! – Amit Sharma
Amit Sharma is the CEO and Founder of www.prepaid365.com and a senior prepaid industry consultant. You can follow him on LinkedIn.