It’s an age-old theory: New ideas spark new business opportunities. In 2009, the “Bitcoin” network was launched, introducing a worldwide virtual currency. The idea of an Internet-based monetary system had been tossed around since the creation of the Web, circa 1994, yet despite many valiant attempts, cryptographers—those attempting to write the web-based code—failed to produce a digital currency that was both self-regulating and not prone to self-implosion. Bitcoin, however, may have accomplished what its predecessors could not, and as a result business entrepreneurs around the world are starting to pay attention.
Bitcoins are not printed by any mint or physical entity, but rather are created through a decentralized network of users called “miners.” These miners use specific Bitcoin programs downloaded to their personal computers to solve mathematical puzzles on the Bitcoin network. Each puzzle represents a sequence of Bitcoin transactions called a block. The miners use their Bitcoin software to chip away at a block, and if they are the first to successfully solve the puzzle, they are rewarded with the proverbial golden nuggets—Bitcoins. These Bitcoins enter the marketplace and can be used as currency by the owner to purchase goods and services from any vendor accepting Bitcoins as payment. It is estimated that one BTC, or Bitcoin, is currently worth US $835, up significantly from its approximate value of US $200 just a few months ago. At the height of their value in early December 2013, Bitcoins traded for an estimated US $1,200. [Photo: Bitcoin mining rig, complete with liquid cooling]
Bitcoin transactions are completed by sending and receiving Bitcoins from one virtual wallet to another in a direct, peer-to-peer transfer of currency that does not include an intermediary such as a bank, yet is still subject to verification by the Bitcoin network. Every transaction is identified with a unique web address and is recorded on a public ledger called the “block chain” for anyone to see. Once a transaction is completed, the unique address provided by the Bitcoin program is placed into a block for miners to verify—a process that generally takes 10 minutes. Once that transaction is verified, the Bitcoins are transferred from the consumer’s virtual wallet to the seller’s.
So, What Can One Do With a Bitcoin?
The answer evolves daily. The Bitcoin’s popularity is growing rapidly, and many small businesses have begun accepting the digital currency as proper compensation. Today, a person possessing Bitcoins can do many things, including hiring a lawyer, purchasing an automobile, or ordering a pizza, to name just a few. The website usebitcoins.info provides a list of businesses currently accepting Bitcoins, along with a world map pinpointing their locations. The list of businesses accepting Bitcoins is growing in the United States, and worldwide, with many international transactions occurring each day. Savvy entrepreneurs are realizing that many consumers are valuing Bitcoins, filling their virtual wallets with Bitcoins they are eager to spend. By accepting Bitcoins, these small businesses are attracting a new market of customers that their hesitant competitors are not.
The Dark Side of Bitcoin
The use of Bitcoins in the criminal world is impossible to ignore. Bitcoin transactions are faceless and require zero personal information to execute—making it a currency of choice for consumers who value anonymity. Law enforcement agencies are aware of the problems posed by Bitcoin use in the black markets, and have found ways to arrest and prosecute those using the digital currency to promulgate criminal activity. Most prominent, on October 1, 2013, the FBI arrested Ross Ulbricht, the alleged founder of Silk Road, a website known for facilitating black market transactions on the Internet. Ulbricht was charged with multiple federal and state crimes, including conspiracy to traffic in narcotics and conspiracy to launder money. Three weeks after the arrest, the FBI seized over 144,000 BTC from Ulbricht’s virtual wallet—worth approximately US $28 million at the time. Since there was no cash to be seized and no real bank account attached to Ulbricht’s Bitcoin account, the FBI simply transferred the Bitcoins from Ulbricht’s virtual wallet, to a virtual wallet operated by the FBI! Currently, the FBI is in possession of nearly 174,000 BTC out of the approximately 12 million BTC in circulation, acquired through seizures related to criminal activity.
Since Bitcoin is not a fiat currency backed by a government, the key to its current value is the ability to convert Bitcoins into a legal tender that is known and accepted. Businesses that are currently accepting Bitcoins are doing so with the understanding that they will be able to exchange their Bitcoins for money that will allow them to pay-their-bills. Companies such as Mt.Gox, Kraken, and CoinX are just a few of the companies focused on converting Bitcoins into dollars, euros, Yuan, and more. These companies turn a profit by charging fees for their services; however, they allow the Bitcoin world to continue to grow by providing an avenue to obtain real life value for an intangible object that lacks intrinsic worth.
With each passing week, more and more companies latch on to the Bitcoin bandwagon. Recently, Robocoin and Bitcoiniacs launched the world’s first Bitcoin ATM in a Vancouver coffee shop, exchanging approximately US $10,000 over 81 transactions on its first day. Just last month, Baidu, the Chinese company known by many as the “Chinese version of Google,” began accepting Bitcoins. These companies are conducting international business through a country-less currency, and are embracing the promise of future pecuniary gain. Although many have their doubts as to the stability of this young currency, it is hard to argue against recent results. Bitcoins mean business.