25 November 2013
‘SEPA will help Bitcoin thrive’
While SEPA is high on the agenda of European banks, business and consumers, it is not the only initiative that aims to harmonise payments on an international level. Recently, media have paid increasing attention to Bitcoin. The currency is now at an all-time high and the first Bitcoin millionaires have already been identified. Although the European Central Bank is having some serious concerns about Bitcoin, the currency appears to be unstoppable.
In this blog post Robert-Reinder Nederhoed, founder of Bitmymoney, explains the differences between SEPA and Bitcoin – and how they can work together.
The Single European Payments Area will upgrade the Euro and might take some wind out of the sails of complementary currencies such as Bitcoin. Simultaneously, its advantages will be beneficial to any business within the region, including Bitcoin businesses. SEPA will help Bitcoin grow as a global currency.
The banking system is changing. On the user’s side, there is a rise in mobile usage of banking services in both developed and developing countries. On the corporate side, banks are connecting their networks worldwide by unifying standards and protocols. SEPA is the European initiative in this last category.
Outside the financial system complementary currencies are gaining traction. Such currencies have always existed, but thanks to software and the Internet, starting a currency has never been easier. By keeping a currency completely digital it is cheap for everyone to participate. All you need is a mobile application with Internet access to take your money with you and spend anywhere.
Most complementary currencies stem from local initiatives. In the UK, for example, Wikipedia lists 6 currency schemes, 75 time banks and 400 local exchange trading systems (LETS). All complementary currencies have a company or foundation to serve as a central authority that manages the currency and its infrastructure.
Notable exceptions are cryptocurrencies like Bitcoin. These are neither local, nor do they have a single authority. These currencies rely on cryptography for security and transaction validation. They have a distributed infrastructure spanning thousands of servers worldwide. The rules of the currency lie in open source software, open for inspection to anyone.
While SEPA and Bitcoin are on the opposite ends of the spectrum, they are more alike than one would think:
- SEPA transfers will be effective within 24 hours, regardless of location. Bitcoin transfers are immediate and can be considered permanent within an hour (6 confirmations within the Bitcoin network).
- Both SEPA and Bitcoin transfers are irreversible.
- SEPA will provide uniform low pricing, regardless of location. A Bitcoin transfer fee of XBT 0.0001 (EUR ±0.024) is optional.
- SEPA requires IBAN account numbers, which vary in length from 15 (Norway) to 31 (Malta) characters. Bitcoin users use special addresses to transfer money. A Bitcoin address has a length of 27 to 34 characters (ex. 12jwJYBFGjQ3GBcSNxiHHUN8hHapZ8j7V9).
The last point has a big negative impact on usability. Normal users cannot memorise account numbers of over 15 characters. Smart software should come to the rescue for both the Euro and Bitcoin.
Why the buzz around Bitcoin?
The potential of Bitcoin lies in its key differences with fiat currencies like the Euro:
- The Bitcoin network is open for anyone to build services on. Building on the banking infrastructure is reserved to banking organizations.
- Bitcoin is pseudo-anonymous, meaning all Bitcoin transactions are public but not publicly linked to identities. Bitcoin users can choose to keep their information private, or use the public ledger to prove a payment has been made.
- Bitcoin is programmable money. This means that the currency is open to innovative services, ranging from traditional escrow, scheduled payments and payment requests to more complicated structures like multi-signature transactions and notary services.
It might be a bold statement to predict that SEPA will help Bitcoin, but there are many arguments to support this. Fast and low-cost Euro transfers might undermine the use case for Bitcoin in international transfers within the EU. SEPA will however not affect key aspects of Bitcoin:
- A truly global currency; not linked to a state or region
- Non-political; no law can intervene with a transaction
- Low risk of inflation; no state or company can ‘print’ extra money
- Pseudo anonymity; all transactions are public, but not linked to an identity
SEPA will provide a better interface to the European financial system. Businesses can skip connecting to payment schemes in each of the 31 counties individually. It will open up the European region to Bitcoin businesses, helping to provide customers with the global currency faster and, vice versa, ease the exchange of Bitcoins back to Euros.
For the starting phase Bitcoin is in, SEPA is a valuable initiative that will help Bitcoin thrive as a global currency.