Bitcoins

My Grandfather was a small town lawyer in the 1930s. 

One of his less fond memories was the difficulty of getting paid for his work (plus ça change, plus c'est la même chose).  People did not have money but they did have other items and he would often have to take his fees in chickens or eggs or firewood. 

Even today, when I do work in Nunavut, I am asked to take carvings or sealskins rather than money.

The problem, of course, with barter is that you do not always get what you want or need – I have plenty of carvings and have very little need of sealskins.  My Grandfather had a lot more chickens than he ever wanted or needed.

And this is why we have currency.  A sealskin is worth about $60 but to buy, say, $60 worth of canned peaches with a sealskin I need to find a grocer who wants a fur.  Or I need to go to someone who will take the sealskin, give me less than $60 worth of peaches and make a living or the difference.  If you have currency the trader in the middle is cut out and people can focus on producing what they produce instead of barter arbitrage.

Virtually all nations/states have their own currency.  Except for gold or silver coinage, the value of the currency depends on the faith and trust people have in the government issuing the currency.  When that faith vanishes so does the value – witness Zimbabwe and German in the 1920s.

Oddly, a new currency has emerged from the Internet which appears to have no basis for faith and trust beyond that people have given it faith a trust – a little bit like Tinkerbell.

A number of Canadian businesses now accept Bitcoin, the digital currency that made its debut five years ago, and has been gaining momentum ever since.

Bitcoin transactions are seen as more convenient than other forms of payments as they are sent directly and instantly from one person to another, avoiding processing and other fees usually charged by banks or third parties. Travellers can avoid avoid carrying cash, or paying fees on travellers cheques or for currency exchanges, said Mancini.

To use Bitcoins, users must first set up a so-called digital wallet, which gets managed through an app. The transactions involve buyer and seller scanning each others' smartphones to transfer the Bitcoins.

Vancouver saw its first Bitcoin automatic teller machine go live in a downtown Vancouver coffee shop last fall, followed by Toronto and Ottawa. Consumers can exchange Canadian cash for the digital currency at the current exchange rate.

The volatility of the value of Bitcoins, which is not regulated by any central bank, is also an issue. It jumped 50 per cent on Nov. 18 after regulators signalled that digital currencies could be acceptable but plunged 30 per cent on Dec. 5 after China's central bank banned Bitcoins as currency, according to the online exchange Mt.Gox.

Fans of the currency say that because there's a finite supply of 21 million Bitcoins, the currency will continue to appreciate.

But, for businesses, the value of transactions could fluctuate greatly before the Bitcoin transactions are transferred into a hard currency, such as Canadian dollars.

Bitcoin was recently listed at $885 on VirtEx, Canada's virtual exchange to buy and sell Bitcoin.

The Canada Revenue Agency has said using digital currency must be included in the seller's income for tax purposes and the amount included would be the value of the good or service in Canadian dollars. It also notes that digital currency can also be bought or sold like a commodity and any resulting gains or losses could be taxable income or capital.