Other side of bitcoin boom

Software developers are riding on the sudden rage for the virtual currency, with application programs to make it easier for its use

PUBLISHED : Saturday, 07 December, 2013, 3:59am
UPDATED : Saturday, 07 December, 2013, 3:59am

Matt Tuzzolo, who used to split restaurant bills by sending money through PayPal, now wields his iPhone to pay his fellow diners - in bitcoins.

"It's more convenient than PayPal," said Tuzzolo, a software developer who uses the Gliph mobile application to transfer digital money on the go. "It's as easy as sending a text."

Gliph, which has more than 25,000 users, has raised more than US$350,000 from venture capitalists. It is one of hundreds of bitcoin-related programs available from Google and Apple app stores.

The mini-boom in bitcoin software for smartphones is making it easier for consumers to use the virtual currency in place of cash for quick transactions, such as paying for food.

The widening appeal of the digital money is also fuelling a rally that has lifted bitcoins to record levels, surpassing US$1,000 each last week.

"Bitcoin's success hinges on how well it's adopted and configured for mobile," said Richard Crone, the chief executive of payment-researcher Crone Consulting. "They are very dependent on mobile actually scaling."

Since bitcoins exist as software, apps on wireless devices are an efficient way to transfer money. While physical coins representing bitcoins are in circulation, they either store software or are used as a proxy for a digital transaction. The emerging category of mobile bitcoin apps is aimed at making it easier for people to employ the programs for everyday tasks, such as storing digital money in virtual wallets, paying other people and stores for goods and services, and exchanging bitcoins for dollars and other currencies.

"It has to be there, in person, when you have to spend it," said Rob Banagale, Gliph's chief executive.

While mobile apps are fostering wider use of bitcoins, other challenges include security, regulation and app-store approvals.

China on Thursday barred financial institutions from handling bitcoin transactions, sending the virtual currency's value down more than 20 per cent to below US$1,000 on the BitStamp Internet exchange.

The People's Bank of China said bitcoin was not a currency with "real meaning" and did not have the same legal status. It said the public was free to participate in internet transactions provided they took on the risk themselves.

Virtual currencies and mobile payments are two areas regulators will scrutinise for potential legal violations. The US Consumer Financial Protection Bureau is monitoring the growing mobile-payments industry as part of its brief to police retail financial markets.

It’s a bubble. You have to stretch your imagination to infer what the intrinsic value is

Former Federal Reserve chairman Alan Greenspan said bitcoin prices were unsustainably high. "It's a bubble," he said. "You have to really stretch your imagination to infer what the intrinsic value of bitcoin is."

To provide some security, Asedik, a bitcoin payment service, limits customers to three transactions a month. "We want to make sure mobile-phone users are protected," chief executive Matthew Martin said. "We never want to get into a scenario where someone stole your phone and made purchases."

Martin said Asedik's user base was growing at 40 per cent every month. He declined to disclose the user numbers.

Bitcoin's shift to mobile was happening even though Apple had rejected many bitcoin payment apps, especially those that exchanged bitcoins for dollars and other currencies, developers said.

Rejected developers are instead flocking to Android-based devices, according to Pavel Nikitenko, developer of an app called BitcoinViewer that lets users track how many bitcoins they have left in their wallet.

Apple and Google prohibit apps involved in any illegal activities. There are about 250 applications in the Google Play Store offering services ranging from bitcoin money transfers to exchange tracking. On Apple's iTunes, there are almost 100 apps offering everything from mining monitoring - a way to see how fast your computers are generating bitcoins - to virtual mobile courses on bitcoin.

Bitcoins emerged in 2008, designed by a programmer or group of programmers going under the name of Satoshi Nakamoto, whose real identity remains unknown. The currency is not regulated by any government or central bank. New bitcoins can only be created by solving complex problems embedded in the currency, keeping growth limited.

While bitcoins could be used for nefarious purposes, they could also be a "legal means of exchange" and policies needed to be crafted to regulate their use, the Department of Justice said last month.

The growth in mobile bitcoin apps is also being driven by the spreading ubiquity of mobile devices. Global shipments of mobile phones and tablets will exceed personal-computer shipments this year by more than six times, according to researcher Gartner.

"That's going to be the big game, on mobile," said Nicolas Cary, the chief executive of mobile Bitcoin app provider Blockchain.info

The market for mobile payments is projected to reached US$235.4 billion this year, according to Gartner.