Post date: Apr 18, 2013 12:36:51 AM
Bitcoin -- an anonymous, self-regulated, virtual currency -- raises questions about whether mainstream tender may one day be a thing of the past.
NEW YORK CITY, NEW YORK, UNITED STATES (APRIL 16, 2013) (REUTERS) - EVR (pronounced "Ever") Gastro lounge in Midtown Manhattan is buzzing. It's just after 6pm on a Tuesday and the line of patrons is out the door.
The club is just more than three months old and already owners Alex Likhtensteinand Charlie Shrem are changing things up to keep their business trendy.The pair has introduced a new payment option for clientele, called Bitcoin.
"It's only been about a week so far and we've had over a dozen customers use it already and I'm sure as word is getting more and more out there, more and more people are coming, now that they've finally found a place in the real world to spend them," said operating owner, Likhtenstein.
Bitcoin is a new form of money that uses cryptography or a code system to control its creation and transactions, rather than relying on central authorities.
The inventor is believed to be pseudonymous developer Satoshi Nakamoto but that has never been confirmed. The first Bitcoins were traded in 2009.
The virtual currency can be transferred via a computer or Smartphone without an intermediate financial institution, making it completely anonymous.
New York University professor, Arun Sundararajan says that anonymity is one of Bitcoin's big draw cards.
"I think that that's part of why people are finding Bitcoin attractive; that it's really the first widespread, completely anonymous, form of digital currency," said Sundararajan.
So how does one buy or own Bitcoin? Mt.Gox is the world's largest Bitcoin trader, handling more than 80 percent of volume, according to the company's website. Mt.Gox facilitates the exchange of Bitcoins between users globally up to 16 different currencies, along with the ability to securely store Bitcoins in a virtual "vault" for safe keeping.
Sundararajan says that there is a maximum, finite number of Bitcoin that will ever be available, i.e. 21 million. Currently 25 new Bitcoin are created or "mined" every 10 minutes.
"In a few years that number will be halved and then it will be halved again, until you know, a target year, which I believe is 2040, where there will be 21 million Bitcoin. This doesn't seem like too many. The thing is, that the Bitcoin is divisible into extremely small pieces, so as a form of currency, there will a thousand-fold more fractions of Bitcoin, you know transactionable pieces of Bitcoin - than there are dollars at this point," explained Sundararajan.
Co-owner of EVR, Charlie Shrem is significantly invested in Bitcoin. He's the Vice Chairman of the Bitcoin Foundation.
"What got me really interested about Bitcoin was the fact that you can literally send payments from one person to another without a central clearing house, bank, government, corporation, all of that. And it was truly person to person. Not only that, but the unit of value that's behind Bitcoin, there's a cap on inflation and there's no arbitrary printing of money," said Shrem.
Shrem calls Bitcoin the "largest socio-economic experiment the world has ever seen."
The value of Bitcoin fluctuates, trading on Wednesday (April 17) close to $90 (USD). Shrem and Likhtenstein demonstrated how a client would pay using Bitcoin. If a bill total was, for example, $50.00, then that would be 55.55 percent of the value of one Bitcoin if that Bitcoin's value was $90.
But there exists what some call the "dark side" of Bitcoin - illicit on-line purchases. OnlineMBA.com and Truthloader recently produced reports about The Silk Road, a well-hidden website via which customers can use Bitcoins to buy drugs, firearms and other illegal items. Truthloader showed Adam Kokesh receiving drugs he says he bought from The Silk Road, followed by a sequence Kokesh posted on his website, www.adamvstheman.com of him enjoying the affects of the drug.
Shrem says it's to be expected that initial use of a new currency will be by those that most need anonymity to continue illicit activities. But he claims recent research indicates that The Silk Road and Bitcoins are no longer so dependent on each other.
"About two years ago, they did a study and I think ti was like over 60 percent of all Bitcoin transactions were Silk Road. Now it's way under 15 percent. It has gone down so much, it dwarfs," said Shrem.
Bitcoin's survival rests a great deal on the currency and its supporters' ability to ensure that an increasing number of vendors accept the tender.
OKCupid, an on-line dating site with over four million users announced Wednesday that it will accept Bitcoins as payment for its premium A-list subscription features.
Though brick and mortar businesses are less likely to follow EVR's example, Bitcoin might succeed in gaining popularity and value on the Web.