Bitcoin Finding Growth, Stability at the Local Level
Bitcoin may be a virtual currency, but it’s slowly gaining steam in the real world. Acceptance of Bitcoin at brick-and-mortar businesses has climbed steadily since the first exchange was established in early 2009, driven largely by merchants looking for a cheaper alternative to credit and debit card transactions.
After a year of growth, the Bitcoin community stumbled last week. MtGox, the currency’s largest exchange site, halted withdrawals after an extended period of transfer delays, and Apple removed the popular app Blockchain from its store. But that did not stop customers at Lean Crust Pizza and Green Ave. Market in Brooklyn from successfully using bitcoins to make purchases.
Dan Lee, who manages both storefronts, began accepting Bitcoin in late 2009. Chalking his decision up to “pure curiosity,” Lee’s businesses became well-known after a post in the Bitcoin subreddit, and he says at least one customer per day chooses to make their purchases with the currency.
“It’s designed perfectly,” Lee said. “It’s cheaper, there are no transaction fees, no chargebacks. Every single business owner in the world would choose that, so why don’t they? But there’s not enough of a consumer base at this point.”
The market for Bitcoin exploded in the past year, with its market capitalization growing from $252 million in March 2013 to over $8 billion today. Network-based and wholly dependent on the agreements and interactions of the system’s users, Bitcoin has developed a reputation as the currency of choice for online drug marketplaces, most famously Silk Road. But some of its users are business owners like Lee, and by accepting the currency they hope to legitimize it and pave the way for larger companies to join in.
“Most people think of it as a speculative investment, a commodity. But really, it’s just currency,” Lee said. “All of the fears associated with Bitcoin will be taken away when it’s seen as just a payment vehicle.”
Bitcoin transactions are irreversible and pseudonymous, meaning use is completely transparent within the network, but not necessarily traceable to one’s personal identity. This anonymity was key to Silk Road’s early success in facilitating illegal transaction, but Bitcoin proponents are quick to remind that U.S. dollar bills are also frequently used illegally.
Though its reputation may be the largest hurdle in the trend toward mass adoption, Bitcoin faces problems on a smaller scale, too. Despite having accepted the currency for over four years, Lee still doesn’t get enough customers paying with bitcoins to integrate the currency with his existing POS system, and this means he, as a user, must be involved with every transaction.
To pay for goods, Bitcoin users use digital wallets — applications on desktop computers and smartphones that can receive and send the currency to other users, as well as track and confirm previous payments. In brick-and-mortar stores like Lee’s, customers looking to pay in bitcoins can usually find a computer with the network, which they use to access the account they’re sending money to.
The Bitcoin wiki provides an “Improvement Proposals” page, which the community uses to discuss issues at length and pitch possible solutions. It is widely recognized that new regulations and procedures will have to be adopted to maximize convenience and security.
Businesses like Lee’s are important factors in analyzing and smoothing out these problems. The advantages for local establishments, besides the cost efficiencies from eliminating third-party processors and institutions, are deeply rooted in the community that defines Bitcoin. If a business accepts the currency, it becomes a point on the map users have created; it drives traffic without eliminating other customers.
The implications of the mass adoption of online currency are enormous, as it could essentially decentralize the financial system on an international level. But current Bitcoin users have a much simpler objective in mind — purchasing everyday goods and services.
“It’s going to start at the consumer level,” Lee said. “Eventually, Bitcoin will break out of its community. And since business owners cater to consumer demands, there will have to be a change.”
Annie Melton is an intern at Street Fight.