The term ‘Bitcoin’ first appeared in 2009 when Satoshi Nakamoto—a potential pseudonym of either a single person or group—invented the world’s first decentralized digital currency.
This 21st century currency employs a third-party, intermediate, cryptography system resulting in a more secure and confidential medium of exchange. No governmental monetary authority controls this ‘cryptocurrency’; instead, computers running very sophisticated mathematic schemes mine Bitcoins. The mathematics of the Bitcoin system are designed in such a way that it becomes more and more difficult to create new units of the currency, fixing the ceiling at 21 million Bitcoins. This limitation prevents central banks from issuing massive amounts of Bitcoins, which would lead to its devaluation.
According to Tony Gallippi, the co-founder and executive chairman of BitPay, the largest global Bitcoin payment service, Bitcoins are being used beyond their role as currency, and are now seen as a valuable piece of technology.
“We are using [Bitcoins] as a currency, but you can also use it as a payment system or a distributed ledger to prove property rights,” Gallippi said. “What’s giving it value and is getting people excited is its utility.”
There are two main advantages of using cryptocurrency. It can be transferred directly at a low transaction cost, and is also a floating currency, which means that the monetary value of Bitcoins comes from its ability to fluctuate in relation to the foreign exchange market.
According to the webpage ‘History of Bitcoin,’ the number of Bitcoin transactions and the number of wallets—a system used to store the digital credentials for Bitcoin holdings—has continuously risen from its inception in 2009. However, some issues do arise from the use of the digital currency.
It is not officially recognized as a currency in itself in many countries—including Canada—and is thus not subject to the same regulations. This absence of regulation and the ability of guaranteed anonymity of the transactions paid in the cryptocurrency raise concerns.
An internal memo addressed to the former Canadian Minister of Finance Jim Flaherty stressed that the digital currency could represent an attractive payment method for criminals.
“Virtual currencies such as Bitcoins have been criticized for their potential to fund illicit activity, such as money laundering and terrorist financing,” the memo states.
Some tech companies have started to offer their employees the option to be paid in Bitcoins. Wagepoint, an American company offering online payroll software solutions to small businesses, recently added a Bitcoin option to its list of services. Employees from 10 different firms have already switched from traditional payment methods to a Bitcoin system.
Wagepoint CEO Shrad Rao himself is surprised by the popularity of this new option.
“What’s interesting is that we’ve actually had customers come to us because of the [Bitcoin] integration—which we were not expecting at all,” said Rao in an interview with CBC.
While the cryptocurrency is gaining momentum in Canada, many restrictions are slowing its assimilation. The government does not recognize Bitcoins as official currency—they’re classified under barter transactions—and thus, employees choosing to be paid in Bitcoins still have to pay their taxes in Canadian dollars. Furthermore, most brick-and-mortar companies do not accept Bitcoins as a method of payment.