There’s a new boogeyman in town though and its name is Bitcoin – one of many new ‘cryptocurrencies’ online. A lot of buzz has been generated and a lot of people have that same feeling of apprehension they once had about typing in their credit card online. But is Bitcoin something to be wary of, or is it just misunderstood?
Before we can answer that question, we first need to know what it is. The easiest way to understand Bitcoin is if you think about it just as you would normal currency. You can spend it (where accepted), transfer it to others and convert it to other currencies.
There are no physical coins though, no notes that you can satisfyingly rub in your hands. It’s a purely digital currency and, naturally, it’s mostly used for transactions online. However, that doesn’t mean it can’t be used in the real world. More and more places across the globe are starting to accept the currency. There are shops in the UK, Australia, the U.S. and elsewhere that are happy to trade in Bitcoins. Bitcoin ATMs are even starting to pop up in places like Holland, Denmark and Portugal.
“De Waag Bitcoin” by Targaryen – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.
Online is where most transactions are made though, and it’s a currency that has had a lot of thought put into how best to transfer money online. One of the big reasons people are attracted to Bitcoins is that, like physical cash, the currency offers pseudo-anonymity. All transactions that are made using the currency can be seen in a public ledger, but the identity of those involved is unknown. While this is great for those people who don’t want to be tracked, this could cause a potential headache for charities. Remember to approach any large Bitcoin donation in the same way that you would a cash one – exercise caution, research and talk with your donor to make sure they are legitimate.
When used correctly Bitcoin is a really safe currency to trade in. You see, it’s a cryptocurrency, which is a fancy way of saying it’s a currency that is encrypted (i.e. it’s protected by complicated algorithms). These complex mathematical equations prevent any of the money being duplicated or any more being created. While this does add a great deal of security to the coins, it also adds one of the biggest downsides, one that anyone who has misplaced their paper money before will be familiar with – if you lose your wallet, or it gets stolen, then it’s gone.
Which brings to mind the question, where do bitcoins come from? The answer somewhat surprisingly is mining. Now this isn’t mining like in the good old days, there’s no pickaxes, dynamite or, sadly, any precious ores and gems. This is digital mining, where computers do the hard work – CPUs and GPUs working out the solutions fancy algorithms.
When Bitcoin first appeared in 2009, any computer was powerful enough to mine a few coins, but as time has passed it’s become much more difficult. Now it’s near impossible to mine on your own, you either need an honest to goodness supercomputer or a massive team to help you out. There are two reasons for this; the first is popularity. Simply put, more people mining equals more competition. The second reason is that it is designed to be this way, Bitcoin uses a controlled supply system wherein coins are released into the economy at a gradually decreasing rate. They will keep doing so until it plateaus at 21 million bitcoins. We’re currently at just over 13 million.
This gradual supply is an attempt to create stability in the economy. Unlike most currencies, Bitcoin is decentralised, which means that there is no central bank (such as the Bank of England) printing more coins or setting interest rates to stabilise the economy. Bitcoin is self-regulated and its value is completely determined by the demand for it, and this is its biggest weakness.
At the time of writing the exchange rate is 1 bitcoin to every £343. At the beginning of 2013 the same coin was £7.90, peaking at £733 in November of that year. The currency is volatile, and has had major spikes and major crashes in value. It’s been continually increasing in value though, and those who adopted the currency early have seen massive gains.
So that leaves the question, should your charity accept Bitcoin? Yes, you should. Offering your supporters more ways to support your cause is always a good idea. There are people who will be more comfortable and will find it easier donating in bitcoins. They want to support you, just as much as those using debit cards or handing you cash or sending checks do. Some charities are already starting to realise this and are making steps to accommodate their Bitcoin-toting supporters. RNLI, for example, recently became the largest UK charity to accept donations in the cryptocurrency.
There are other reasons why the currency makes financial sense. We’ve previously seen how fundraising platforms can take slices from your donations with administration fees and third-party payment costs. Now imagine that wasn’t the case. Well, with Bitcoin it isn’t – there are no fees involved at all.
The currency has other financial benefits too. While many donation platforms allow people to claim chargebacks – meaning that people can donate, quickly change their mind and force their card company to get the money back – Bitcoin doesn’t. This not only enables you to keep all the donations you receive, but also allows you to avoid some hidden charges. You see, many platform providers charge you for chargebacks, even when it’s not your fault, sometimes with fees of up to £10 per time. Using Bitcoin as a transfer method avoids this potential pitfall.
If you do decide to start accepting Bitcoins you need to be mindful of the risks though. Understand the volatility of the currency and, if you are not confident, make sure to exchange it quickly to a money you are more comfortable with.
These, and many more reasons, are why Bitcoin is the hot topic at the moment, and why it is being discussed around the world. The cryptocurrency is making big splashes, and now is a great time to get on board and surf the wave of interest it’s creating. By accepting Bitcoin, not only would you potentially increase donations, but you’d also put forward a strong image – as a charity that’s not afraid to evolve and adapt to new technology usage, as charity that’s forward thinking and is making strides to understand and enable its supporters and the ways they want to support.
Currently, in the grand scheme of things, Bitcoin is still a minor player. It’s not going to compete with cash or online donations in pounds and pence any time soon, it might even only account for a couple of donations a year. The cryptocurrency has been slowly gaining more and more advocates year on year though. In the beginning, it was only used by cryptography fanatics, then it bled through to the technological elite, now we’re at a point where most technologically minded people are aware of the currency. If, and when, it becomes known to the wider public, it has the potential to get very big, very fast. Just think, five years ago, Facebook seemed like a mystery to most people. Nowadays, 1.28 billion users visit the site every month. Who can predict where Bitcoin will be in five years.
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