The future of bitcoin is unknown, but the state of Ohio is ready to dip its toes in the cryptocurrency market. The Buckeye State is now accepting bitcoin as a form of payment for tax bills. I spoke with the State Treasurer, Josh Mandel, about the initiative as well as Gartner analyst, Avivah Litan, about the future of bitcoin. Below is an edited transcript of our interviews.
Josh: It’s part of a larger push in our office to really embrace modern technology and ask the question how can we leverage modern technology to make government more efficient for taxpayers, and that’s the real drive behind OhioCrypto.com.
And listen, I believe the states are the laboratories for democracy, and so I envision our launch of OhioCrypto.com ultimately inspiring states around the country to enable their taxpayers to pay their taxes via cryptocurrency, and at the end of the day, hopefully the federal government will follow suit.
See: What is blockchain? Understanding the technology and the revolution (free PDF) (TechRepublic)
Karen: Whether other states will follow suit remains to be seen. I spoke with Gartner analyst, Avivah Litan, who said she doesn’t expect other states to immediately jump on board but does think this move provides a glimmer of hope in the volatile bitcoin market.
Avivah: I think it’s a good sign. It’s a small step. It’s not going to result in mass adoption, and even if all the states start accepting bitcoin for taxes, it’s still not that much volume of transactions relative to retail payments, but I think it’s a good sign, and I also think ultimately that the credit card companies are threatened by digital currencies because in the end if their rates are lower to the payment acceptors, then they’ll want to use that currency. Starbucks is already in the game, and we can talk about that.
Some people may say, “Well, you can use your bank account to pay your taxes, and that’s even cheaper than a credit card or bitcoin payments,” but it’s much less secure. The last thing I want to do is store my bank account number with any state agency that has hardly any money to secure the servers. So, I’d much rather not store my bank account. I mean, there’s various methods, but I think this is a pretty secure method, and it could be cheaper. It will be cheaper than credit cards. So, I think it’s an exciting step, but it’s a small step.
Karen: Bitcoin’s meteoric rise in 2017 was followed by a consistent downward slide this year. Litan says there’s no doubt a correction was needed, but she looks to 2019 for three major initiatives that potentially point towards an uptick.
Avivah: One of them is what Nasdaq is doing with futures on bitcoin. A second is Fidelity is setting some exchange services for bitcoin. And the third is a company called Bakkt, B-A-K-K-T, and they’re owned by ICE, which is a clearing house started by the former New York Stock Exchange founders, and that company Bakkt is setting up custody services for bitcoin security services so that big institutions like Morgan Stanley and Goldman Sachs and anyone else can trade in bitcoin without the security risk and regulatory risk. They take custody of the funds on behalf of the trader.
They also have an agreement with Starbucks, and they’re not talking about that agreement, and it won’t go live if it does until after this institutional custody service, but they pretty much have said … It’s a little wishy washy. I think they’re just trying not to be too public about it and keep it … you can look it up though. You can Google it. But Starbucks has partnered with Bakkt, and the thought is once this custody service is up, Starbucks then will be able to take bitcoin payments through their Starbucks app, and similar to Ohio, they’ll be paid in fiat currency, so dollars; they won’t have to touch bitcoin, but people that own bitcoin will be able to pay for their cup of coffee in their regular Starbucks wallet using this facility.
So, I think if that happens, and I’ve been told it will happen, it’s just when, we don’t really know. Probably not until late 2019, maybe 2020. I think that would be a tremendous impetus for cryptocurrency and blockchain retail payments because number one, it’ll be cheaper for the retailers. The retailers are constantly suing Visa and MasterCard over rates. I don’t know if you followed all that. They don’t like paying these high rates, and if they can get lower rates from companies like Bakkt or even BitPay that Ohio is using, they’re going to go for it. I mean, the lower rates is what drives the market.
And Starbucks really drove mobile payments in the United States. Nothing took off with mobile payments until Starbucks started taking mobile payments from their mobile app. So, they’re in a great position to really move adoption of bitcoin payments, and we’ll wait and see, but it looks like a pretty promising initiative.
Karen: As for the risk involved with Ohio accepting bitcoin, Ari Lewis, the Cryptocurrency Advisor to the Treasurer’s Office, said he wasn’t concerned.
Ari: BitPay will then have the price, so say the taxpayer wants to send $1,000. They’ll send the equivalent of $1,000 of bitcoin at that time, and then BitPay will then wire the state of Ohio $1,000, and it will always be the same corresponding amount that the taxpayer put in. So, we will not be taking on any of the volatility risk that’s associated with bitcoin.
Karen: Not everyone is so bullish on the future of bitcoin. In fact, the head of the SEC warned investors last year about the risks of investing in largely unregulated digital currencies, and some analysts have even predicted it’s a matter of time until it’s worthless, eventually hitting zero.
We have a great deal of coverage on all things related to digital currency that you need to know on TechRepublic and ZDNet.
- Bitcoin: A cheat sheet for professionals – TechRepublic (TechRepublic)
- Bitcoin explained: Here’s everything you need to know – CNET (CNET)
- Bitcoin is actually going to ruin the world, climate scientists say – CNET (CNET)
- Mini-glossary: Cryptocurrency terms you need to know – TechRepublic (TechRepublic)
- Cryptocurrency: The bubble is over, here comes the boom | ZDNet (ZDNet)