By: Jason Shim and Anne Connelly
In the last few years, Bitcoin has gained widespread attention in mainstream media around the world. However, much of this coverage has tended to be sensationalized, offering cursory understandings of Bitcoin, which has overshadowed some of the practical and useful applications of this disruptive technology. As Associations contend with an ever-changing technological landscape, it is worth taking a moment to understand Bitcoin and some of the broader trends that are emerging and peer-to-peer payments.
What is Bitcoin?
Bitcoin is a digital decentralized currency introduced in 2009. You can think of it like digital gold. It isn’t owned or created by any single government or organization, and there is a finite amount available. The more bitcoin enters circulation, the harder it is to add more. Because it’s digital, bitcoin can be instantly transferred to any person or organization around the world with almost no fees.
Bitcoin is created, or “mined”, by computers with high speed capacity that solve complex mathematical problems. The reward for mining is bitcoin, which is provided to the person who is running that computer. There are approximately 12 million Bitcoins currently in circulation and there are 21 million Bitcoins that are built into the algorithm-reaching that limit will take decades.
Bitcoin is built upon a system called the Blockchain. The Blockchain is a universal public ledger that everyone can see. Every Bitcoin transaction is logged on the public Blockchain, which is then verified and enables users to agree on who owns how many bitcoins. This addresses the fundamental problem with digital currency of how to avoid counterfeiting, or double-spending, by users.
In essence, Bitcoin represents a way in which individuals and organizations can transact with one another without the need or approval of a central authority like a bank or a government. Bitcoin has the potential to democratize finance the same way the internet democratized information.
Practical applications of Bitcoin in organizations
The most beneficial aspect to Bitcoin is the ability to instantly send money anywhere in the world using only your smartphone. Innovative companies around the world including Microsoft, Virgin, and Expedia have integrated bitcoin into their retail operations, and many others use it to pay their overseas suppliers and remote consultants. One sector that is on the forefront of the technology is the not-for-profit sector.
At Pathways to Education Canada, a charity dedicated to helping youth in low-income communities graduate from high school and successfully transition into post-secondary education, Bitcoin was offered as a donation option in the Fall of 2013. This soon generated over $2,000 in donations, mostly from individuals who were early adopters of the currency and were seeking a charity to support.
At Dignitas International, a medical and research organization dedicated to transforming patient health and health care systems for the most vulnerable, Bitcoin was implemented at May 2014, which opened up not only new opportunities for donations, but also valuable partnerships with industry organizations. As an early adopter, Dignitas has been named the official charity of CoinFest Toronto and DEC_TECH, local conferences dedicated to Bitcoin.
At both Pathways and Dignitas, the challenges surrounding our respective implementations were similar. Payment processors such as Bitpay.com make it easy for organizations to get started as they provide a free and low-cost packages for basic implementation of bitcoin acceptance. However, the current return for the donation program is low. With competing revenue priorities, bitcoin often takes a back seat to higher revenue generating activities. Considerations must also go beyond donations to also include the opportunity to position the organization as forward thinking and tech-savvy.
Questions around the treatment of Bitcoin as donations were easily resolved. The Canada Revenue Agency (CRA) advises that receipts for income tax purposes may be issued as long as fair market value is established. Since donations of securities to charities are treated in a similar manner, it was simple to apply that process to Bitcoin donations by selling immediately to establish a fair market value. By doing so, any price volatility of bitcoin is also mitigated.
Beyond donations, however, Bitcoin has wider potential as a useful decentralized payment system. In the context of development work, many large-scale humanitarian NGOs work in places where there is limited banking infrastructure and nearly all transactions are carried out in cash. This can be problematic from a both a logistical and safety standpoint as the process of paying staff salaries involves transporting very large amounts of cash with staff members through insecure locations– which raises the risk of theft and. However, the combination of Bitcoin and technology that is readily available over cellular networks makes it possible to instantly pay staff directly from head office, the funds deposited straight to their cell phones.
Perhaps most importantly, Bitcoin has the potential to transform daily life for the more than four billion unbanked and underbanked people around the world by providing them with an accessible financial system.
Why should Canadians explore Bitcoin?
In Canada, there have already been some initial forays by both government and the private sector into digital currency, which provide a hopeful future for Bitcoin and similar technology. In 2012, the Royal Canadian Mint announced that the launch of the MintChip program, which was an exploration of digital currency and peer-to-peer payments. Part of the initiative involved a national contest, The MintChip Challenge, for software developers to create “innovative digital payment applications” and proofs of concept using the MintChip platform. Though the Royal Canadian Mint announced that they were shutting down the Mintchip initiative in 2014, it is an indication that there is government buy-in to the concept and that this is an area that may hold promise for other players in the market.
If we examine trends in North America, technology around reducing transactions fees around peer-to-peer payments is rapidly gaining in popularity. In the United States, Venmo is a very popular payment for sending payments that has seen rapid growth. Though they don’t release official user numbers, in the fourth quarter of 2014, they processed over $900M in transactions, with much of that occurring between 18-24 year olds. In Canada, Payso is a recent Canadian entrant that aims to do the same. Though payments from individuals to organizations are not yet available, it would be relatively simple for these payment systems to integrate this feature.
QuickBT.com, a Canadian startup that allows individuals to purchase Bitcoin using Interac has reported that as many as 25% of their users are under the age of 18. For these youth, it is more economically viable to purchase Bitcoin rather than purchasing a pre-paid credit card to make online purchases for gaming.
Whether it be Bitcoin or another form of payments, digital peer-to-peer payments are exploding. Nonprofits and associations would do well to determine how they can integrate these payments into any programs or services that may be provided and what policies and procedures they would need to have in place.
When the Internet was first made commercially available to the general public in the 90s, it was not uncommon to read sensational headlines about how simple it was to access instructions for constructing homemade bombs. Indeed, in 1998, American Economist Paul Krugman predicted that, “By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” In retrospect, it is easy to see that the Internet was, at times, misunderstood and underestimated.
Similarly, when online payments via credit card were first offered, they were met with skepticism, but eventually people felt comfortable transacting in this way online and it is now considered a required technology for nearly every retailer. Charities that saw the potential of this technology and moved ahead were able to reap the benefits of being early innovators in this space. Rather than taking a “wait and see” approach, organizations that are early adopters of Bitcoin have had unique opportunities to engage tech-savvy organizations and individuals who are active in the community.
Peter Chasse, president of the Water Project, has raised over $20,000 in bitcoin and other cryptocurrencies for his charity and offers, “I think how it plays out in the nonprofit sector—and whether the nonprofit sector once again comes up 10 years behind everyone else or leads—is the open question at this point.”
As technology such as Bitcoin is considered for Associations, it is worth reflecting upon whether your organization will be a leader in this space, or will be following the examples of others. In any case, one thing can be assured– there will be significant changes to the way that we conduct financial transactions in the next ten years and initial explorations in digital currencies may help pave the way for that change in your organization.
Jason Shim serves as Digital Media Manager for Pathways to Education Canada, an organization dedicated to helping youth in low-income communities graduate from high school and successfully transition into post-secondary education. Pathways addresses systemic barriers to education by providing leadership, expertise and a community-based program proven to lower dropout rates. Follow Jason on twitter @JasonShim
Anne Connelly is the Director of Fundraising and Marketing at Dignitas International, a medical and research organization dedicated to transforming patient health and health care systems for the world’s most vulnerable people. Dignitas has provided over one million HIV tests and put over 200,000 people on lifesaving treatment since 2004. Follow Anne on twitter @Anne_Connelly
To “B” or not to “b”?
Do you use a capital B or a lower case b for Bitcoin/bitcoin? According to the Bitcoin wiki, “Since Bitcoin is both a currency and a protocol, capitalization can be confusing. Accepted practice is to use Bitcoin (singular with an upper case letter B) to label the protocol, software, and community, and bitcoins (with a lower case b) to label units of the currency.”