The internet has made nearly instantaneous access to information and communication a reality, but we cannot go as far as to say the same velocity of access applies for money. And money is what makes the world go around.
Let’s imagine a typical situation people might find themselves in.
Mr. A, who lives in Finland, wants to make a small sum of money accessible to Mrs. B, who lives in Japan. First of all, Mr. A and Mrs. B would need to have a bank account. This requires vast amounts of queuing, identifications, paperwork, signatures, codes and all sorts of annoyingly important stuff that needs to be done so that their bank can track, analyze and supervise every penny that goes through their accounts.
After this Mr. A would need to transfer the money all the way to Mrs. B’s Japanese bank, which will include the processing fees of all the 3rd parties who make the transfer possible. Even with companies such as Transferwise, exchange rates will add to the total price and the time of the transfer would still take up to 1-3 days. When Mrs. B eventually sees the money in her account after waiting for several days, Mr. A has ended up paying a lot more in process fees compared to the sum he originally wanted to transfer. And the service was slow and gives Mr. A no control over his funds, not to mention the poor privacy aspect.
But that’s the way it goes.
Or is it?
Internet hackers are always on the hunt for infrastructural loopholes in societies. Sometimes they cause havoc, but there are times some geeky philanthropist does mankind a favor. One such geek was a presumably Japanese, anonymous hacker only known as Satoshi Nakamoto. He decided to create a monetary system that was independent of central banking and governmental control, an immense, decentralized algorithm that would have no personal interests but that of the users.
And such was the birth of Bitcoin, the digital currency that would never experience inflation, deflation, outrageous transfer fees or governmental control. And by cutting the need of a middle man, the transfer velocity from user to another would be unprecedented. It’s a revolutionary idea, to say the least.
But how does it work?
Going into detailed explanation of the structures behind the bitcoin system would turn even a hardened mathematician into a quiet cabbage farmer in some remote part of Wisconsin, but the simplified basics behind it can make some sense for us ordinary mortals.
Bitcoins can be obtained through operations which are referred to as “mining”. Basically this means the system presents miners with progressively more complex cryptographic puzzles that contain data from bitcoin transactions, which a miner’s computer will attempt to solve. The first miner to solve the task will generate a block of 50 bitcoins for himself. This amount would halve every 210 000 blocks, from 50 to 25 etc. The entire system contains a preset amount of these coins, 21 million in total, so it can be imagined as natural reserve with a limited amount of resources that are collectible, hence the term “mining’.
By now, around half of these 21 million bitcoins have been mined, with estimations that the last bitcoin will be out in the market around 2140.
Mining is very slow though, so in case you want your very own bitcoins, I would suggest you buy them through one the many exchange companies that are out there. These companies buy and sell Bitcoins depending on their market value, which is entirely based on supply and demand. The more people want bitcoins, the more valuable they become. With an initial price of just a few cents in 2009 to the current staggering price of €750, bitcoin has certainly turned from an unknown inside joke for a selected few, into a phenomena that is becoming more widely acknowledged.
If you feel like you need some visual backup to better understand what you just read, check out this video.
I was recently in touch with Henry Brade, CEO and Co-Founder of the largest Finnish Bitcoin exchange site, Bittiraha.fi. His first encounter with bitcoins happened in 2011 and like many others, he got his first coins through mining. With IT background and experience as a professional online poker player, numbers and virtual currency did not scare him away; quite on the contrary, in it, he saw a potential business opportunity. By 2012 he and his team had put up the early version of their current company: A local bitcoin exchange, through which customers could either buy or sell bitcoins.
The first year was a quiet one, with monthly exchange volumes hardly passing €100k . Volunteer work, personal investments and a vision of a market that had not yet made its breakthrough, began to bring the website domain name into a wider public knowledge. With the bitcoin-scene becoming more popular around the world, Finnish web dwellers in need of bitcoins turned to Bittiraha, who was, and still is, the only site that focuses mainly on exchanging bitcoins in Finland.
But why blindly go and throw your precious money to the first provider you run into? Let’s take a quick look at the alternatives.
- You could buy bitcoins straight from the huge international bitcoin exchanges such as Mt. Gox, where the prices are most likely going to be the most realistic ones.
- You could buy them directly from another individual who wants to get rid of his/her bitcoins. In this case, finding a person willing to do this might be difficult, but there are websites that connect people facing this problem, like LocalBitcoins for example.
Or you could just buy them from Bittiraha, which holds a few important advantages.
First of all, when buying from international exchanges, the money transfer could take several days to get to its destination, during which the volatile bitcoin rates can change significantly. This means you will get fewer coins than what you expected. In the case of selling bitcoins, the payment settlement can take a long time to be processed, sometimes up to 4 weeks. A national exchange will process purchase requests and payment settlements within 24 hours. For bitcoin investors, velocity is half a victory and a local exchange means faster interaction between banks and information.
With LocalBitcoins, the payment process can be as fast as a local exchange, but this comes with a price. When trading from person to person, the exchange rates are rarely as low as in the major exchanges. Buying bitcoins this way could come with an extra 5 % fee, compared to the 1-2,5% rates exchanges provide. In order to get a good deal, you will have to work hard as searching for traders and promoting oneself in a forum based web site can take a few hours of dedicated concentration.
All in all, Bittiraha is not only the biggest name in Finland when it comes to bitcoin exchanging; they’re also the best.
Today, Bittiraha has a monthly transfer volume of €1m, and each month has brought better results than the previous one. Brade believes the service can potentially solve the biggest problem bitcoins are facing in Finland, which is the stigma of a frightening new currency which cannot be trusted.
And he isn’t exaggerating it either. Bitcoin-wise Finland is way behind other European countries such as the UK and Germany, where bitcoins are already accepted as payment in a wide range of different shops and retailers. In Graefekiez, Berlin, bitcoins are commonly accepted all around the block and even Russia has Subways where this new currency can be used to purchase a delicious sandwich.
Where can you use bitcoins in Finland then? Brade says there are around 10 stores where you can buy with bitcoins, and most of these are e-commerce. He thinks the biggest reason why bitcoins are still fairly unknown is because major shops and retailers haven’t had the courage of stepping forward and integrating bitcoin payment into their systems. If this was to happen though, others would surely follow.
And this might happen sooner than you think.
Some of you who were in Slush 2013 might’ve noticed the funny looking ATM box in the dining area by the Bittiraha stand. As you can guess, it wasn’t just any typical ATM machine. It was, in fact, Finland’s first ever bitcoin automat. Equipped with a unique software design, the automat lets you buy bitcoins for cash in a matter of seconds. All you need is a smartphone with a bitcoin wallet application and some good old traditional money. Slip in the cash, let the machine read the personal QR code of your wallet address and receive bitcoins. Quick and easy.
This very same ATM will be placed into an unrevealed store in central Helsinki somewhere during December, providing services in Finnish, English, Swedish and Russian. The store will be accepting bitcoins as payment, so this could be the final push the bitcoin needs in Finland.
Brade was recently in touch with a restaurant in Tampere who is also interested in taking the path of the bitcoin, so it’s clear that the currency in itself is taken seriously, and that many are interested in assimilating it into their business. Brade believes we will be seeing a lot more of bitcoin activity in the near future.
With e-commerce being the first on the list, bitcoins could be integrated even into cashier systems all around the country. Bitcoin ATMs in airports would also seem like a very natural thing to happen, seeing that travelers from around the globe have a never ending need of exchanging money. Bitcoins would not only make this much quicker, but cheaper as well. In a country where bitcoins would be widely accepted, this universal currency would be independent from international exchange rates. Just pack your coins into your virtual wallet and forget the hassle of messing around with large sums of cash.
But all of this is still far away. The bitcoin industry is a young one, and there still much to do, and much more to grow.
One thing Brade is sure about though, if the prototype ATM launch goes well, there will be more to come, and even if not, Bittiraha is doing well enough anyways. Expansion into the European markets has been in sight for a while now and some talks about Asia have been heard, not to mention their e-commerce will be completely renovated due to its increasing popularity. Even with an ongoing investment round on their hands, he assures me that money is not the issue for now. He says the debtless company is more on the look for talented and inspired workers, so if you feel like you could be Finland’s next Satoshi Nakamoto, hurry up and code your CV over to Bittiraha.
Anyway, I’m guessing the Bittiraha team will be busy for a while.
Out there though, the bitcoin scene is growing on a rapid pace, and Finnish companies are missing a unique business opportunity unless they start taking action immediately. The north will only stand a chance in the global market if they grab the rising businesses by the arm as soon as they emerge, and bitcoin is already well on its way up. It’s a train we shouldn’t miss.
In other news, if you happen to be a happy owner of some bitcoins, you might want to check out the Bitcoin Black Friday. Unlike the American version, this Black Friday has lots of interesting offers that can be purchased with bitcoins, so go and have a look.
Top image courtecy of Shutterstock // Bitcoin