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Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Sex, drugs and Bitcoin – is digital currency the future of finance?

The digital currency Bitcoin has proved to be an intriguing innovation in the world of finance from its very conception in 2009. Linked with drug deals, prostitution and money laundering its birth has been both controversial and shrouded in mystery. The origins of its inventor are not known, although it is suggested that Satoshi Nakamoto, the only name provided in the founding paper, is a 37 year old male living in Japan. Various rumours abound on the founder’s existence but whilst the hunt for Nakamoto continues at the business insider, the more interesting question is whether there is a role for digital currency in the future of finance?

Mining for digital gold

Bitcoin is a cryptocurrency, which is an electronic payment system based on cryptographic proof instead of trust. The mathematical formula used in the process of issuing the currency imitates a limited stock pile of gold. A finite number of 21 million Bitcoins are available with computer algorithms monitoring the number of Bitcoins in circulation. New Bitcoins may be released as part of this monitoring process, which provides an incentive for people to undertake this laborious task. This is known as ‘mining’. However, if your computer skills aren’t quite up to scratch, you can fill your digital wallet by purchasing online – currently one Bitcoin trades at around $95. A word of warning though – there have been wild swings in its valuation.

International, fast and cheap

So why use this digital currency instead of dollars, sterling or euros? The main draw is that you can transfer money globally, quickly and at minimal cost. Up until now, you couldn’t make a web based transaction without a trusted 3rd party intervening. Now, using Bitcoin, it would be possible for me to purchase coffee from Guatemala, bananas from St Lucia and espadrilles from Brazil in 10 minutes without worry of exchange rate fluctuation and a minimal transaction charge. Bitcoin’s system is completely transparent, transactions are anonymous and not subject to tax.

Surely the great monetary economist Milton Friedman would be an advocate. When calling for the Fed to be abolished he suggested an automated system, driven by a mathematical model, where the money supply increased at a steady, predetermined rate issued by the treasury in order to create a more stable environment for spending and investment. Sound familiar..?

The darker side – a digital black market

The anonymity of transactions has led to a darker side in the use of the currency. You can now buy drugs from a digital black market known as the Silk Road, an anonymous online marketplace for psychedelics and stimulants amongst other paraphernalia. It has been used by organised crime groups linked to money laundering and the sex trade. Recently the authorities seized a digital currency exchange Liberty Reserve for illegal activities worth $6 billion. Also, there are security concerns – recent hack attacks caused one person to lose over $200,000 worth of holdings. Bitcoin did however state that the security issue had been resolved, making it harder for virtual robbers to grab some digital swag.

The future of digital currency and the CFO

With an increasing number of customers choosing to transact online there is no reason why a digital currency could not succeed in the future. The key to the success of a digital currency will be in its public adoption rate. Currently it’s uncommon to purchase the morning newspaper with a Bitcoin, but uptake is on the increase with Fidor Bank AG forming a partnership with Bitcoin Germany and the Winkelvoss twins’ $10 million market flotation.

So what factors should be considered if your business decides to add a Bitcoin account? Firstly, we should recognise that the digital currency is still at an early stage in its lifecycle and therefore a high risk. Adopting Bitcoin in a company would broaden a customer’s ability to purchase online. However, the highly volatile currency value would present a problem in pricing products. The credit check process may be replaced by verification of the online account of the purchaser, in addition to a complicit trust in the monitoring process and security of the network. Also, the CFO should consider reputational impacts on the company, considering current links with the digital black market.

Despite Bitcoin itself having flaws, the concept of a digital currency, a way to transact freely and transparently in an increasingly globalised economy, is compelling and one that finance departments should be prepared for in the future. 

About the author

Chris Moreton
Chris Moreton
I am a consultant in Finance Transformation. I help clients to build business cases for digital investment appraisal and improve finance reporting and processes. Twitter: @chris_moreton
4 Comments Leave a comment
Really interesting piece Chris. I think there is a compelling case for digital currency, it will be interesting to see how it can move away from it's current reputation.
This is a great digital topic, from my experiences the advent of an all channel experience requires corporations to be able to handle multiple online payment methods in a flexible format from conventional credit card to PayPal to digital wallets (consilidation of loyalty points, vouchers and promotions). If there was sufficient governance of trading and value this could be the next online payment avenue for select pioneers. With the major banks moving at a pace to offer touch less and account transfers through SMS (Barclays ping it), this could offer a ready made alternative to the flexibility and speed of currency movement. Cue more interesting heist movies!
Great article Chris! Do you think the anonymity of the Digital currency, therefore growth in the black market, will slow down societies migration towards a cashless society; or will infect accelerate it, but through the current banking infrastructure? I read a event article suggesting Canada are ready to go cashless.
Thanks Nathan. I don't think that the anonymity will slow down the adoption of digital currency, the uptake of Bitcoin will depend more on whether the currency can improve its reputation and engender trust. Having trust in the currency is key to its success. According to a recent white paper produced by Thomson Reuters, banks have recognised this and are investing in technology to monitor transactions and gain knowledge about customers. Additionally, law enforcement agencies are also enabling this with legal investigation technology - the Feds recently shut down the Silk Road website ( I think an improved regulatory environment should help to build trust in digital currencies and stimulate a higher adoption rate. If you would like a copy of the Thomson Reuters white paper then please let me know.

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