Cape Town - Bitcoin. It’s a currency that only exists on the internet, no one is sure who created it, and roughly every 10 minutes 25 new coins “pop” into existence.
Timothy Stranex, co-founder and director of technology start-up BitX in Stellenbosch, says even defining it is difficult.
“It is a digital currency or commodity, it has properties of both. No one knows what exactly to classify it as.”
Stranex, 26, worked for Google in Switzerland helping build Google Maps, before returning to South Africa to found BitX with Nicholas Pilkington, a 28-year-old Cambridge graduate with a PhD in machine learning.
The start-up went live in March, and on its website users post offers in rand to buy and sell Bitcoins.
When a buy and sell offer matches, the deal is done.
Carel van Wyk, a developer and engineer at technology company FireID, explained that the computer programme behind Bitcoin was created in 2009 by Satoshi Nakamoto.
New coins are created every 10 minutes and the process will continue until 2100, he said.
But Bitcoins are not only exchanged for other currencies on sites like BitX. Since early 2010, they have also been used to buy and sell goods.
In May 2010 – in a transaction that has gone down in Bitcoin lore – a user on a Bitcoin discussion forum offered 10 000 Bitcoins in exchange for “a couple of pizzas”.
“Like maybe 2 large ones so I have some left over for the next day,” user Laszlo from Jacksonville, Florida, wrote. “I like having leftover pizza to nibble on later.”
Four days later he announced a successful trade.
Stranex said that at the time of the pizza story, no businesses accepted the currency. Today, thousands do.
“Now it is at the stage where it is starting to become actually useful for normal people,” he said.
Pieter Heyns, a chartered accountant at FireID, said when Laszlo offered the 10 000 Bitcoins, no one was even sure what a Bitcoin was worth.
“At the beginning, when it was created, the Bitcoins would have been worth nothing because nobody even knew about them,” he said, adding that they were not like “traditional” currencies.
“No single authority owns, can print, increase or multiply the number of Bitcoins,” said Heyns, who has worked with South African tech start-ups for the past five years.
“And, not only can you see all your transactions. You can also see everyone else’s transactions.”
But why should people use Bitcoins instead of rands?
Stranex said the advantages boiled down to three main points:
l For internet transactions, paying by Bitcoins is faster, cheaper and more secure than paying by credit card.
The fee for any Bitcoin transaction, regardless of the amount paid, is 10c.
“(It’s) much smaller than the fee for a credit card,” said Stranex, adding that combined credit card and bank fees could cut around 5 to 6 percent from a merchant’s sale.
Bitcoin accounts, he added, were also easier to set up than credit card payments.
“You just create an address and put it on your site. Straight away you can accept the coin.”
l Trades on BitX have been increasing since its launch in March – from 288 trades, worth a total of R218 000 that month, to 415 trades worth R397 000 in September. The company makes money by charging a commission of 1 percent of the rand value of exchanges.
l The Bitcoin vs US dollar exchange rate, meanwhile, has been rocketing since the beginning of the year.
In early January, you could buy one Bitcoin for $13.50. This had climbed to $125 per coin by mid-October.
Today, the 10 000 bitcoins that Laszlo swopped for some pizzas would be worth $1.25 million (R12.5m).
Stranex said the currency was “extremely” secure.
“When you send Bitcoins to somebody, they get the coins, but they don’t get your secret code. It is impossible for them to steal anything from you.”
While the number of businesses accepting Bitcoins has been rising internationally (Wordpress and dating-site OkCupid are two of the biggest), few South African companies accept them.
One local early adopter is Landmark Computers.
“Bitcoin allows for a seamless electronic transfer of funds that is not only safe, but does not attract traditional banking fees,” manager Andrew van der Nest said.
The company had been accepting the digital currency since 2011.
But South Africa, Van der Nest said, had been slow to adopt the currency.
“Most (South African) companies either have not heard of Bitcoin, do not understand it, or find it hard to convert BTCs to rands.”
Stranex, meanwhile, is already pondering a new use for Bitcoin, one which he says might be its “killer application”: money transfers for migrant workers.
Bitcoin, he said, could slash the high fees migrant workers pay to send money home. - Weekend Argus