News Advisor Changing the future of money, bitcoin by bitcoin
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Changing the future of money, bitcoin by bitcoin

Bitcoin
AAP
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In the early days of bitcoin, back in 2011 before digital currencies were cool, 17-year-old Zhou Tong created the world’s first bitcoin margin trading website from his high school dormitory in Singapore for $200. A year later, he sold the company (which he was too young to legally own anyway) to American investors for a six-figure sum.

Asher Tan, a young Malaysian economist working in Melbourne, read the story of this self-taught tech savant in the Wall Street Journal and thought, “I don’t want to sit at this desk anymore writing reports”.

Now, Asher Tan sits next to Zhou (anglicised as Ryan) at a work station on the fourth floor of an office building in Queens Street, Melbourne. Asher is the 26-year-old CEO of CoinJar, and Ryan, still a teenager, is the chief operations officer. Together, they are players in a digital gold rush.

“Very soon, you’ll see a lot of new, familiar faces accepting bitcoin,” says Asher.

The CoinJar website, which allows consumers to quickly buy and sell bitcoins in Australian currency, and vendors to sell products using bitcoins, used to operate out of a decommissioned knitting mill in Richmond, a suburb on the Melbourne CBD fringe.

But the company’s new home is in the heart of Melbourne’s financial district. It is flanked by financial heavyweights like the ANZ Bank headquarters and the Bank of China, organisations that deal with real money – notes and coins, credits cards and cheques.

What is bitcoin?

And yet, CoinJar isn’t concerned with real money. It trades in bitcoins, an entirely digital currency used to buy and sell things via the web. It is often referred to as a ‘cryptocurrency’, or a digital payments system that shuns centralised control and is deliberately difficult to track.

Users exchange bitcoins directly with each other, with no banks or credit card companies in the middle handling the currency on the way through.

The transactions are enabled by the computing power of thousands of “miners” across the globe, who can strike it rich by earning coins in return for processing the network’s transactions.

“When you say bitcoin, it’s actually so many different things – a store of value, a currency, security, a replacement for gold,” says Niki Scevak, co-founder and managing director of Sydney-based venture capital firm Blackbird Ventures.

Mr Scevak, who is also a supporter of the CoinJar boys, helped to raise a $500,000 investment in the 8-month-old startup.

CoinJar
CoinJar founders Zhou Tong (left) and Asher Tan. Photo: Jackson Stiles

Shadow banking?

Part of the attraction of a digital currency is the anonymity it offers. Without official oversight, you can use it to shop on shady websites like Silk Road, a black market website specialising in drugs and other illegal items. The fact that bitcoins were the currency of choice for The Silk Road hasn’t helped its image.

But in some ways it is very public. Every bitcoin transaction that has ever occurred is publicly recorded. If you know a person’s bitcoin address, you can theoretically check up on how they’ve used the currency.

But since a bitcoin address looks like this — 31uEbMgunupShBVTewXjtqbBv5MndwfXhb — and most online wallets automatically change address after every transaction, it’s almost impossible to discover an address unless the owner tells it to you.

Fine. But what can I buy with it? 

The practical – and legal – uses for bitcoins are currently limited in Australia, but they are slowly expanding.

For example, you can buy ASOS clothes through Bitfash.com or off-road utility vehicles from TomCar Australia, or use the coins to donate to Wikileaks or upgrade your WordPress blog. In September last year, the Old Fitzroy Hotel in Sydney announced that drinkers could pay with digital currencies.

“Very soon, you’ll see a lot of new, familiar faces accepting bitcoin,” says Asher.

Beyond bitcoin

Bitcoin isn’t the only online currency out there. There are rival currencies popping up with exotic names like BBQCoin, Litecoin, Dogecoin and Ripple.

The latest, released on January 7, was to be called Coinye West until legal threats from American rapper Kanye West forced a change to the meeker Coinye. The Canadian Royal Mint has even launched MintChip, an experimental digital currency backed by the government of Canada.

But bitcoin, which Mr Scevak says is “number one by a country mile”, surpasses the lesser-known competitors in popularity, which is all-important for a currency that fancies itself as the payment method of the future.

To obtain bitcoins, you go to a site like CoinJar and convert cash into coins at the volatile market rate. If you want the coins quickly, say in 15 minutes, you’ll need an account with the National Australia Bank (NAB), which has rallied around CoinJar.

Friction

For CoinJar, this is where the nascent world of digital currency has met establishment players with unhappy results.

After being banned for life from banking with the Commonwealth Bank, supposedly following fraudulent transactions made by a small number of customers, Asher and Ryan also received an unwelcome phone call from Apple, telling them iPhone users could no longer buy and sell on the CoinJar app, although they could still check on their Bitcoin balance.

Would you trust a cryptocurrency?

As the world learns more about digitial currencies, CoinJar has already come to dominate the Australian bitcoin market, with 20,000 users and a daily trading volume in six figures.

If CoinJar realises its vision of creating a global payment company, trust is paramount. For bitcoin to be widely adopted it must have bulletproof consumer confidence.

The insecurity of bitcoin comes not from the codes controlling the network itself – these have never been breached – but from the websites that trade and store the digital currency. The dark world of cyber crime makes these websites vulnerable to attack.

Is bitcoin the future?

The NAB has recently released a research paper, which raises doubts about bitcoin’s readiness to be a reliable global currency. But CoinJar still has faith that the digital currency will shake up what they call a “stale” financial industry.

“I just like the concept of using cryptography to reshape the financial industry”, says Ryan, who started trading on the stock market at age 12 using his mother’s account.

“I think bitcoin has a lot of potential to change how people trade and transact with money, and how people store their wealth.”

Niki Scevak says investment opportunities enabled by digital currencies won’t bring about the biggest social change. It’s the potential to help those in need, he explains.

“It’s bringing financial services to people that previously didn’t have an Internet connection but now have a $5 Android phone and perhaps financial services made available through bitcoin,” says Mr Scevak. “Those are some of the areas that I’m most excited about — micro transactions of say a few cents or less.”

With their rapidly expanding team, Asher and Ryan are not being cryptic about their goals. They have no smaller ambition than to outplay giants like PayPal and revolutionise the global payment system, and make a few bitcoins for themselves along the way.

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