Some in Silicon Valley are touting the digital currency as the future of how people will use and move money: inflation-proof, non-regulated and high-speed transactions at low costs. Stephanie Chuang reports.
You can leave the cash and the plastic at home if you go to places like Coupa Café in downtown Palo Alto or Ocean Blue Sushi Club in Sunnyvale.
They accept Bitcoin.
JP Coupal who owns the café said he’s done at least $4,000 worth of transactions since the business began to accept the digital currency.
“It went from one transaction a week, then two transactions a week, and now we’re about two or three a day!” Coupal said.
And Kim Park, who owns Ocean Blue Sushi, said it was a move to cut the fees she was racking up from credit and debit card transaction fees.
“All the fees, a lot of fees - more than 3,000 dollars a month!” Park said.
And that excitement is spreading week by week as more businesses choose to adopt the digital currency, from an inn in the ski resort town of Red Lodge Montana to a Florida man buying a Tesla out of a Newport Beach, Calif. dealership using all Bitcoins.
Even a small hotel in Belize is accepting Bitcoin payments. Owners of Corozal Bay Resort tell NBC Bay Area that they’ve had just a few Bitcoin payments but that they love that it’s “easy, fast and safe. And if the value goes up, we might even make a bit of extra money to boot.”
Some in Silicon Valley are touting the digital currency as the future of how people will use and move money: inflation-proof, non-regulated and high-speed transactions at low costs.
Even the latest report by Bank of America-Merrill Lynch analysts calls Bitcoin a serious competitor. Still, the volatility of the digital currency market is clear as news that China’s biggest Bitcoin exchange would no longer take in the local currency of renminbi (RMB) triggered a one-day drop. At one point, the Bitcoin market value went down to $500, losing more than half of its value at its highest point just last month.
So how does the system work? The Bitcoin is like a digital coin that people send directly to one another online all across the world. Each time someone transfers a Bitcoin, there’s an electronic signature that appears like a string of characters. Countless computer networks are working to solve complex math problems to verify each transaction, which is usually complete in a matter of minutes for the users involved, which is then logged permanently and anonymously into a public ledger. This process is known as “mining.”
Each successful mine then produces another Bitcoin. The system is designed to only put out 21 million Bitcoins, which is set to prevent inflation. People we spoke with believe this will revolutionize the way everyone looks at and uses money.
Micky Malka founded Ribbit Capital, a venture capital firm in downtown Palo Alto. He said his firm is the most exposed to and has the biggest appetite for digital currencies.
“It’s as big as the Internet. If I were to talk to you about Internet in 1992 and tell you everything that the Internet will do for society, Bitcoin is the same for money all over the world,” Malka said.
He sits on the board of the Bitcoin Foundation, which has the stated mission of standardizing, protecting, and promoting Bitcoin. Malka believes the math-based currency will change how people move around money, cutting out everything from fees, to paperwork to overall red tape.
He described trying to get money to relatives in Venezuela as an example.
“You cannot send money to Venezuela, it’s very, very hard and difficult. It will take weeks and lots of paperwork,” Malka described. But he said that all changed when he tried Bitcoin. “Sent them this weird number of characters, they got them in their computer, they went locally and exchanged them in a matter of minutes. It was all settled and all done at a cost of zero to transact.”
But there is one thing Malka believes is missing: infrastructure to help make Bitcoin easy to navigate for both merchants and consumers. And that’s why Ribbit Capital decided to invest in Coinbase.
The San Francisco-based start-up Coinbase started in 2012 with a goal of helping people both purchase and sell Bitcoins, and also acts like a Bitcoin wallet where consumers can store the digital currency in the cloud. The company states it holds 667,000 consumer wallets and relationships with 17,000 merchants, as well as some integration with U.S. banks.
“You go onto Coinbase, link your bank account, kind of a very similar flow like you might see on PayPal and hit the buy Bitcoin button. It’s that simple,” said Fred Ehrsam, Coinbase co-founder.
Ehrsam, who left his position as a trader at Goldman Sachs in New York City for the start-up, said he believes Bitcoin will tip into the mainstream in just six months.
“The reason I’m convinced it’s here to stay is because it fundamentally is far more efficient than current banking and payment rails in place right now,” Ehrsam said. “So generally speaking you think about networks like Western Union, for example, it’s sort of a closed, black box network where they control all the fees and it’s not open to become efficient in any way.”
But Bitcoin isn’t the only option.
Charlie Lee, MIT graduate and former Google employee, decided to quit his job to pursue the digital currency space – in fact, Lee created his own alternative currency in Litecoin, which he models as silver to Bitcoin’s gold.
“Less and less people think that I’m nuts now,” said Lee. “Two years ago when I told people, they thought I was nuts.”
As the popularity for Bitcoin soared, so have the alternatives, from Peercoin, Namecoin, to Lee’s own Litecoin. “It quickly became the second most popular currency after Bitcoin. All the other alternatives lost to Litecoin.”
Litecoin also fell in value, reflecting Bitcoin’s drop after Wednesday’s news out of China.
On sites like Coinmap.org, consumers can see how many businesses are accepting the digital currencies. According to the aforementioned site, more than 1,800 businesses accept Bitcoin and about 70 accept Litecoin, with almost 40 please in the Bay Area accepting one or both.
But not everyone has faith in Bitcoin. Susan Athey, an economist and professor at Stanford’s Graduate School of Business, said Bitcoin was not a great long-term investment because it’s unclear if that will be the digital currency that lasts.
“It could be an interesting bet, but it’s not something that I would recommend most people add to their portfolio,” Athey offered.
But she does agree that the math-based currency system is going to bring a revolution in financial transactions and related processes.
“The core of the innovation is we have a secure public ledger where I can move value from me to you, and it’s confirmed, public and it’s permanent,” said Athey.
She added the future of Bitcoin depends heavily on how much more people and businesses adopt using it.
“The more transactions that have to go through this system, the higher the value of each Bitcoin because each Bitcoin has to support the volume of transactions running through the system,” Athey explained. “If you had a tenfold increase in transaction volume, in principle, you should have a tenfold increase in the value of the currency.”
U.S. regulators seem to have changed their tune on Bitcoin since the FBI bused “Silk Road” and the use of the digital currency to buy illegal things online, like drugs, to the latest hearings in Washington last month. Three Obama Administration officials testified on the topic of Bitcoin, pushing an underlying message that the concern was not on illicit use as much as it was on premature regulation stifling innovation.
For people like Micky Malka, an investor and Bitcoin fan, the movement continues to be positive. He said despite some rises and falls in the market value, he believes in the system more and more.
“A year ago, I would have said oh, this was a nice experiment. I’ll give it a five percent chance of success," Malka said. "Six months ago was probably seven-and-a-half percent. Now I give it over 25-percent.”