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Bitcoin’s soaring transaction fees, following the digital currency’s 1,300 per cent surge in value in the past year, have made it practically useless as a token of exchange in Hong Kong.
The fees, which must be paid for a bitcoin transaction to be processed and confirmed by the network, soared from an average of 14 US cents per transaction in early 2016 to a peak of US$37.49 on December 21, before falling to US$16 on January 1. Users must bid to process their transactions first because the network can only process between three to seven deals per second, hence the variable, and rising fees.
Garage Society, a co-working space in Central, said it’s seen half a dozen transactions since it began accepting bitcoin last year.
The rising fees, and the soaring value of bitcoin, are deterring enthusiasts from using the digital currency as a token for buying goods and services, even as the number of establishments in Hong Kong that accept bitcoin has tripled over the past year.
“A customer wanted to pay for a HK$56 cup of coffee, but since the transaction fee was HK$97, we had to decline,” said Paul Li, manager of the Crescent Moon in Kowloon, one of 30 establishments in Hong Kong that accept the digital currency in lieu of cash. “The transaction fee was only about HK$5 to HK$6 in August. Now there is no incentive for people to actually use bitcoin.”
Bitcoin is the most popular among several cryptocurrencies, or digital tokens that use cryptography to secure and verify their transactions. Its value rallied to a record US$19,783.21 in December, before a sharp sell off caused the value to plunge 30 per cent, closing 2017 at US$13,889.99, based on prices from digital currency exchanges Bitstamp, Coinbase, itBit and Bitfinex compiled by CoinDesk.
That ironically has reduced bitcoin’s usefulness as a currency, leaving it to function as a store of value.
“Not many people actually use bitcoin in real life,” said Uphimina Ng, manager of Hong Kong Flower Delivery, one of the city’s first bitcoin-friendly businesses and an enthusiast herself of the virtual coin. “Since bitcoin are becoming so valuable, people – myself included – are not willing to just spend them at the moment.”
The business has had about a dozen orders since 2014 that have been paid for through bitcoin, she said.
“The bitcoin network is very slow to process, and the transaction fees are incredibly high; higher than the cost of the goods sometimes, so nobody has bought anything in a long while,” said Sean Okihiro, owner of the BeanCurious cafe in Hong Kong.
So why are there three times more businesses that accept bitcoin in Hong Kong, compared with a year ago?
It’s the novelty, a way to attract potential customers, said Min Chen, marketing manager at the co-working space Garage Society, who allows customers to use bitcoin to buy day passes for access to its office facilities and amenities. Perhaps due to its customer base of start-ups and technology companies that are more open to disruptive ideas, Chen said she has seen about half a dozen transactions since Garage Society started accepting bitcoin last year.
“But I think people in Hong Kong are still very traditional when it comes to payment,” Chen said.
While the use of digital currency is rare between customers and merchants, it is more common in business-to-business transactions, especially when either side is grappling with the city’s increased compliance or financial disclosure rules, said Leonhard Weese, president of the Bitcoin Association of Hong Kong.
“It is very hard to put a number on those businesses, and many are using bitcoin covertly in fear of their banking relationship being shut down,” Weese said.
