Why are Canadians buying Bitcoin?
Local demand for virtual currency on the rise
In cities across the country, the ability to buy Bitcoin is becoming easier.
Just last week, Toronto and Ottawa had their first Bitcoin ATMs installed, allowing people to exchange cash for the digital currency. This comes three months after the world’s first Bitcoin ATM was installed in Vancouver.
Bitcoin can be traded online for goods and services. Unlike conventional currencies such as dollars or euros, Bitcoin is not tied to any central bank or government.
Demand for the new currency has risen sharply in recent months.
In November, the price of a single Bitcoin went from around $250 per coin to over $1,000 per coin in a matter of weeks. In mid-December, the price dropped by about half after the Bank of China ordered third-party payment providers to stop using it.
Right now, one Bitcoin is worth roughly $900.
Cuts through regulatory controls
Tony Tang, a finance professor at Wilfrid Laurier University who researches digital currencies, says Bitcoin in and of itself has no value.
But he says it has created some functions that meets certain payment and monetary needs, which has attracted investors who give Bitcoin real financial value through speculation.
Bitcoin is generated by thousands of so-called miners. These are people who, working individually or in groups called "mining pools," use powerful computers to run software that solves a series of mathematical puzzles. Each time the miner solves the puzzle, they receive Bitcoins, which they can trade for currency or otherwise put into circulation.
As part of the mining process, miners validate and log all transactions in the Bitcoin network. To have a transaction validated more quickly, users can build a mining fee into their Bitcoin trade, usually a small percentage of the transaction paid to the miner.
The algorithm on which the system is designed guarantees that there will never be more than 21 million Bitcoins generated. Currently, there are about 11.75 million Bitcoins in circulation.
Tang says this is why Bitcoin has been popular with Chinese investors, who view the virtual currency as a valuable commodity such as gold or silver.“It’s much cheaper and faster to transact with Bitcoin,” said Tang. “So if you’re coming from a country with controls on how funds transfer in and out, then it is a very easy way to move your money in and out of the border.”
However other buyers like Karina Black, a University of Waterloo student who recently bought $800 of Bitcoin, say they want to have some handy because of its rising popularity.
“I would be hesitant about putting a lot of my net worth into Bitcoin,” said Black. “But I would like to have some in there and it does make shopping online easier.”
Seth O’Rourke, an IT consultant in Kitchener, says he’s attracted both for the investment capability as well as long term value.
“I see the Canadian dollar relatively as plummeting in value,” said O’Rourke. “I think that it’s a wise decision to switch to a currency that’s holding value.”
The local Bitcoin broker
Since there are no Bitcoin ATMs in Kitchener-Waterloo, purchases by both Black and O’Rourke were brokered by Trevor Creech. He and his team at Waterloo start-up Tinkercoin help people buy their first Bitcoin and enter the world of online money.
“It turns out it’s really hard to buy Bitcoin, especially your first time,” said Creech. “I don’t think there was anyone actively selling around here.”
Creech and his team introduce Bitcoin novices to the digital currency and handle the technicalities of buying and selling. They charge a six per cent service fee to customers on top of the purchased Bitcoin. Since it is possible to buy fractions of a single Bitcoin, Tinkercoin’s deals can range from $100 to $1,000 or even higher.
Creech says the people who buy from him range from Bitcoin enthusiasts to established investors who see an opportunity for a high return.
However, since Creech doesn’t operate a bank or work out of an office, he meets with most of his clients at coffee shops to finalize deals. He admits the deals can look a bit suspicious.
“Essentially two people sit down, exchange a significant wad of cash and they both check their phones and then leave, so it’s like a drug deal where someone just got royally screwed,” said Creech.
He says one of the more bizarre instances was when an established investor paid him $1,000 in $20 bills at a Kitchener shopping mall.
“There was no envelope or anything, so I was sitting at this food court table counting out stacks of twenties just hoping mall security doesn’t walk by,” said Creech.
Like any cash-only deal, Bitcoin does come with certain risks. Creech says a major one is security, since no regulatory oversight means if a person’s Bitcoin account is hacked and the funds are stolen, no one will reimburse the loss.
In addition, although Bitcoin is relatively stable now, it does have the capability to crash again.
The future of money?
Although Creech continues to make deals on a daily basis, he says eventually he would like to see banks issue Bitcoin accounts in the same way they do for U.S. dollars.
It's a matter of time before you start to see a few places in town accept it.- Benjamin Robers, Bitcoin enthusiast
“The reality is, the banks are somewhat threatened by Bitcoin,” said Creech. “Just because it’s very new and big institutions like that don’t move very quickly. It’s going to be tough to get them on board with something like that, but it’s something we could see in four or five years.”
However, Canada’s finance department told the Wall Street Journal last week the government does not recognize Bitcoin as legal tender.
And in a statement to CBC News, the Bank of Canada said it is actively monitoring virtual currencies, but "financial stability considerations are what would prompt the Bank to take a greater interest in Bitcoin."
Benjamin Roberts, a designer at Waterloo tech startup Thalmic Labs who calls himself a Bitcoin enthusiast, believes in the long run Bitcoin could have the same kind of effect on money that email had on communications.
“It’s absolutely incredible how quickly it’s catching on, and there’s online merchants coming online every day and more brick and mortar merchants coming online,” said Roberts.
“I really think it’s a matter of time before you start to see a few places in town start to accept it.”