Bitcoin Is Still Adrift, but with Social Media, Opportunities Abound
The digital currency movement is headed into 2015 still looking for a "killer app" to pull Bitcoin out of obscurity. Mixing Bitcoin's technology with the virality of social media could be the winning ticket.
ChangeTip, a platform for tipping people and organizations via social media, has been getting more attention of late. The company received $3.5 million in seed funding at the beginning of December led by Pantera Capital. It has acquired more than 30,000 users since its December 2013 launch, and one day in November completed more than 10,000 transactions.
We have yet to see the power of the virality of social media and low-friction payments in one package, said Nick Sullivan, CEO of ChangeTip. There were quite a few social phenomena in 2014, such as the ALS Ice Bucket Challenge, that may not have raised as much money as they could have because there wasn't a seamless way to donate to those causes, he said.
Digital currency is definitely seeing increased adoption from merchants, but it remains unclear whether consumers (other than Bitcoin's tech-savvy early adopters) care to use it.
According to an Accenture survey of 4,000 people across different socioeconomic and age groups in North America, 8% of people use digital currency, such as Bitcoin, Litecoin or Peercoin to make a transaction on a weekly basis. When narrowing the results to millennials, the survey found 13% use digital currency on an ongoing basis.
The data was surprising to both Accenture and many industry experts. Accenture will be conducting follow-up research.
"This is part of the inevitable march of digital currencies taking a rightful place alongside the other payment mechanisms out there," said Matt Friend, managing director at Accenture Payment Services in North America. Cryptocurrencies "aren't going to replace everything...but there's a time and place where digital currencies are going to make sense and replace other payment mechanisms."
Social media payment services like ChangeTip are among Bitcoin's clearest opportunities for growth.
According to the company's Twitter feed, ChangeTip has nearly 5,000 followers. On Dec. 23, the American Red Cross partnered with ChangeTip to accept donations over social media sites.
ChangeTip also recently partnered with BitGo for a multi-signature solution for security. Many Bitcoin companies have introduced multi-signature wallets, which require authorization from multiple parties before a transaction can be approved.
"One of the key opportunities Bitcoin presents is micro-transactions," said Will O'Brien, CEO at BitGo Inc. "We have gotten down to the 99 cent price in the Apple Store but not gotten down to paying a fraction of a penny for a Wall Street Journal article."
Most merchants wouldn't accept card payments for such low-value transactions because of the transaction fees. Instead, they could accept Bitcoin, which uses a peer-to-peer distributed payments protocol without reliance on banks or other intermediaries. Because of this, transactions can be sent with very low transaction feesthe default fee for Bitcoin transactions is a third of a penny compared to the average fee of 30 cents for automated clearing house transfers.
Also while anonymity has become a "dirty word" in Bitcoin because of its association with illegal activity, Sullivan said, there's advantages to a payment system that isn't built on a foundation of identity. Not having to know and type in a payee's bank account information, for example, makes transacting easier.
"The next step is to make it an in-flow experience on the platforms people are already using," said Sullivan. For example, ChangeTip users sending money tweet at the payee's Twitter account name an amount of money and include a reference to the @ChangeTip account. On Google +, a user could send funds by commenting on a particular article, specifying the amount of money and tagging ChangeTip.
BitWall has also been developing a platform for monetizing digital content with Bitcoin and social paywalls, which allow consumers to view content after they tweet out a link to it. And Coinbase, a Bitcoin business that provides both a consumer wallet and merchant services, launched a micro-transaction feature last year as well.
Micro-transactions, along with charity and remittance, are some of Bitcoin's best bets for disruption.
"Bitcoin is very necessary technology for a developed society," said Francesco Rulli, president and CEO of bitLanders, a content gaming platform that pays its users in Bitcoin.
Rulli has also created or worked with several other social platforms, including Film Annex, a film distribution and financing platform and Womens Annex, a women's empowerment blogging site, that use Bitcoin to accept payments when mainstream financial services are blocked. The companies would not be able to operate in many of the countries it supports without Bitcoin, he said.
Bitcoin's pseudonymous nature is also a part of its appeal in such instances. Many of the filmmakers, bloggers and activists, especially those from the Middle East and Southeast Asia, are speaking out against repressive governments or ways of life and do not want their real identity exposed, he said.
Rulli's new company, bitLanders, launched in August and builds avatars for users of the content and gaming sites. In early December, the company announced anonymous registration, which allows people to sign up without giving their email address or verifying other forms of personally identifiable information. The company currently knows who 98% of its users are.
While this might seem to run afoul of the law, bitLanders and the other content platforms don't allow users to cash out Bitcoin balances unless they divulge information about themselves. Anonymous users can only purchase new accessories for their avatars or donate the bitcoin they receive to a number of charities that bitLanders vets.
BitLanders has 400,000 registered users and that userbase is growing at about 1,000 people per day, Rulli said. Half of its userbase is from the U.S. Other countries growing significantly on the platform include Pakistan, Vietnam, Indonesia, Malaysia and the Philippines.
Security has been another issue on the minds of not only Bitcoin entrepreneurs but also the payments industry as a whole. As more venture capital is thrown into the market and more consumers and merchants adopt the virtual currency, privacy and security are high priorities.