Tuesday, March 12, 2013

Innovations in the retail payment markets based on Bitcoin

Bitcoin (unit of BTC) is now most successful and controversial virtual money which is issued in 2009 by a pseudonymous developer named Satoshi Nakamoto. As of March 2013, Bitcoin with a valued of 300 million US dollars is in circulation. [L5]

Bitcoin can be used both for real and virtual goods. The scheme maintains a database that lists product and service providers which currently accept Bitcoins[L1] These products and services range from internet services and online products to material goods (e.g. clothing and accessories, electronics, books, etc.), professional or travel/tourism services.[L1] A lot of online enterprises such as WordPress, Mega, Reddit have accepted Bitcoin as a payment currency.

 Bitcoins are issued under certain rules and has a declining issuance rate which will be reduced to 0 by 2040. And by that time, the total amount of Bitcoins will reach 21,000,000 BTC(10,500,000BTC at the very beginning). As there is not a central management regulation, security of the system is ensured by its special rule which stated that the new “gold” will be issued to those (miners) who help calculate and validate the effectiveness of transactions. The calculation consumed certain the resource of CPU as well as a huge amount of electricity which can be seen as the value bases for the currency. In order to make the money enough for trade, Bitcoin is divisible to eight decimal places.

Let’s see some examples for the innovation of Bitcoins in retail payment.

Like Wal-Mart purchased Card, we now have Bitbills(http://bitbills.com) which is a kind of prepaid card storing Bitcoins to transact in real life stores without internet connection.  Users can either exchange the cards at face value (for instance at a retailer) or redeem the funds and spend them in the Bitcoin network.[L2] According to the creator of this innovation, since their launch on 9 May 2011, the demand for Bitbills has been substantial. [L2]


Another important innovation related with retailing is a Bitcoin point of sale system (Casascius Bitcoin POS system ,https://en.bitcoin.it/wiki/Casascius_Bitcoin_POS_system) developed in Oct, 2011.

Its main function is to enable retailers to accept Bitcoins at the point of sale[L4].

The most recent inspiring innovation is a dollar-converting anonymous Bitcoin ATM invented by Zach Harvey, right, and Matt Whitlock, who wished to sell them to bars, restaurant and other retail places.[L5] Every ATM is sold at 1000-1500 Dollars, considering the fact that shops like Cups and Cakes Bakery in San Francisco and PizzaForCoins are all following the suit. We think this ATM might be a big success in business. Just as the creator Harvey said: “It’s so simple that I am just putting in a dollar, before they really know what's going on, their phone tells them, 'you have Bitcoin’
There are many risks concerned with virtual money, including safety (Hacker), value fluctuation (only exchange value, no deposit value), money laundering, policy risk (legal status) and so on. All the problem happened in real money may happen in virtual money. 

However there are also a lot of advantages in it. “The technology represents an easy way to transfer funds across national borders, a process that currently can be slow and cumbersome with wire transfers. Bitcoin is less risky for online sellers than accepting credit cards. While not truly anonymous, it can be relatively private -- and is far more difficult for the U.S. or other governments to trace.”[L5]

And two strong demands coming out of economic development are the most important factors that make us optimistic on the future of Virtual Money.

Firstly, the need of a unified currency is more and more obvious in a more and more globalised economic environment. This is an irreversible process caused by globalisation.  The implementation of Euro Scheme is a proof for the convergence trend of currency. And Virtual Money with its feature beyond geographical limitation and redundant regulation organizations can be a good model for a new Global Currency.

Second, Technology such as RFID makes it possible for human beings to connect and trade wirelessly through a global network. This significantly reduced the cost of transaction, and makes virtual money a currency with strong vitality in a more and more virtualised human society.

Although it’s not likely those virtual money schemes existed today can long survive, even the most successful Bitcoins, due to the political risk and the fact that government is still the most significant power to make change. They can be taken as experiments and drives for the emergence of a global based currency.

We can conclude that with the development of RFID technology and M2M network, it is possible for Bitcoin to become a drive to push for the birth of a new governments involved globally unified virtual currency.  


1.     Virtual Currency Scheme, Oct 2012, by European Central Bank 

2.     BIS (2012), “Innovations in retail payments”, Report of the Working Group on Innovations in

       Retail Payments, May.

4.     Casascius Bitcoin POS system, Wikipedia

5.     Need Bitcoins? This ATM takes dollars and funds your account 23 Feb, 2013, by Declan McCullagh




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