Another Bitcoin Adventure: Cashing out of a Crypto-Currency
Readers of this blog will remember my experiences buying, trading, and selling Bitcoin from a previous post. With a Christmas liquidity crunch looming, I decided to cash out my remaining position of 2 bitcoins (BTC).
I had read that BitStamp (since having suffered a security breach) was providing a service allowing conversion of BTC to fiat currencies, including British pound (GBP). After looking into this, it turns out since my last blog post, Coinbase also offers the same functionality, as does Kraken. All of these websites operate through Single Euro Payments Area (SEPA)-compliant euro-denominated accounts. For example, the Coinbase account is at an Estonian bank and will ultimately allow you to withdraw euros from this account and into a GBP-denominated account via a SEPA transaction. The downside is transaction and conversion fees, plus further identification document verification.
Being impatient I decided to go to the Shoreditch e-cigarette store mentioned in the last blog post. The user experience has changed slightly with the ATM now being the physical manifestation of a Robocoin web wallet. This meant I had to set up a Robocoin wallet, transfer my BTC from my Coinbase wallet, and then log into this account on the ATM.
The upside is that once you have BTC in this Robocoin wallet, you can withdraw cash immediately, rather than having to wait for your withdrawal transactions to be added to the blockchain and so on (refer to previous blog post for details on the old process). In essence, the Robocoin wallet appears to have custody of your BTC, which allows it to disburse BTC from the ATM instantly. This is not true of all web wallets, with Blockchain.info for example, never taking custody of user BTC, instead being a web browser-based decryption service allowing users to access their locally stored wallets.
The downside of this setup became apparent when the ATM stopped giving out cash after distributing £80, with £320 still owing! The wallet showed 0 BTC remaining in my account (since I was withdrawing all my BTC), but my own wallet was only showing £80!
Calling the technical support number on the ATM yielded instructions to email the company a photo of the withdrawal receipt and the bank account to which the balance of £320 would be transferred. The money duly appeared a couple of days later.
Some commentators are saying that Bitcoin is now in the “trough of disillusionment,” the third of five stages in the “hype cycle” that new technologies go through. I am certainly in this phase, mainly because the last-mile properties of Bitcoin are largely terrible (for a variety of reasons that are discussed in the CFA Institute policy brief on crypto-currencies).
As a summary of my experiences, I would conclude that since a cashless economy is not on the cards in the near future (try paying for a black cab in London by card). Bitcoin needs to solve the BTC-fiat conversion issue before mainstream users will go anywhere near the technology.
With the majority of blockchain developments seemingly directed at noncurrency uses of the technology, it appears that the crypto community doesn’t see the BTC-fiat conversion issue being resolved anytime soon. Conversations I’ve had with crypto-currency entrepreneurs in London suggest a catch-22 has developed. Crypto-currency firms do not want to adhere to extensive and onerous “know-your-customer and anti-money-laundering regulations as devoting so many resources to compliance would make their firms unviable. As a result, banks do not want anything to do with them due to the regulatory and reputational risk involved with dealing with money of an unknown origin. Short of giving banks an exemption from being held responsible for BTC-related fraud (not happening) these entrepreneurs saw no solutions to this dilemma.
If we are to trust the hype cycle then this disillusionment may last five to 10 years before Bitcoin goes through the “slope of enlightenment” on its way to the “plateau of productivity.”
Warren Buffett Is Wrong: The Bitcoin Proof (CFA Institute Enterprising Investor blog)
Crypto-Currencies: Intellectual Curiosity or the Future of Finance? (CFA Institute Policy Brief)
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Photo credit: iStockphoto.com/filadendron