Bitcoin has yet to gain the retail traction some hoped it would, despite — or perhaps because of — an astronomical increase in its value.
The value of the best-known "cryptocurrency" surpassed $9,900 U.S. dollars per bitcoin on Tuesday morning, compared with $968 on Jan. 1, 2017. The surge is heavily driven by speculative investment, rather than retail popularity — just three of the top 500 online retailers were accepting bitcoin earlier this year.
In the Capital Region, coinmap.org shows 15 establishments where bitcoin is accepted in some fashion — but one of those is out of business, one gave up on bitcoin long ago and another is counted twice on the list.
Cryptocurrency can be a difficult concept to grasp, which may contribute to its limited adoption by the shopping public.
There’s also the question of its stability: The U.S. dollar has been losing its purchasing power at a relatively steady annual rate of about 2 percent a year for the past decade. Bitcoin’s value has increased 1,000 percent in the first 11 months of 2017 and could someday fall just as hard or fast — it dropped 90 percent over four months in 2011, for example. Bitcoin's own website notes that human history is littered with failed currencies.
“When the price goes up, your $50 is worth more. Or less,” said Nabi Syed, who set up his Schenectady-based business, Absolute Airbrush, to accept bitcoin this past winter.
He has yet to handle a single bitcoin transaction.
Syed believes in bitcoin enough that he bought a better computer and has begun verifying other people’s transactions through the online process known as mining, in which the fastest miner collects a fee for completing the verification first. He thinks widespread speculation in bitcoin is thwarting its growth as a retail payment medium.
“It should be treated like money in your pocket,” he said, rather than as an investment.
“I don’t think people understand it’s like credit,” Syed said. “I’m ready. It’s almost like PayPal for the future.”
Bitcoin also holds the promise of quick and easy donations to non-profit organizations. One that adopted it locally was the Ronald McDonald House Charities of the Capital Region, but like many retailers, it's still waiting for bitcoin to take off.
Executive Director Jeff Yule said the organization ran a few early promotions via Reddit that were successful but has seen little bitcoin activity recently. He suspects the soaring value of the bitcoin has something to do with that. The organization's policy is to sell any non-cash donations it receives, so it doesn't still hold any of the donated bitcoins and hasn't benefited from any appreciation in their value.
MAKING HIS OWN
Justin Capoccia was an enthusiastic early adopter of bitcoin. While he still believes in it and still accepts it at his Niskayuna-based Capoccia Vineyards and Winery, he doesn’t get to use it there often.
“I don’t really do much with it, I don’t think a lot of people in the area know about it,” he said. “I think it has a lot of promise for the future.”
The transaction fees attached to bitcoin make it costly to use for a smaller retail purchase such as a single bottle of wine, Capoccia said. A more likely use would be for an entire case of wine.
Wholesale and business-to-business transactions with bitcoin are non-starters at this point.
“I would love to, but there’s no businesses that accept it,” Capoccia said.
Bitcoin is by far the biggest cryptocurrency by total value. Etherium is a distant second, and there are scores of smaller cryptocurrencies.
Capoccia plans to add one more to the crowded list: He and his brother and a partner have been working for a year to get the computer infrastructure in place for Global Exchange Medium, a cryptocurrency he hopes to launch within a month.
“I want to make something that’s a bit more stable, pricewise,” he said.
Sort of like bitcoin, but small.
Albany florist Louis Bannister tried bitcoin and quickly dropped it, but he remains interested in the concept, if it can be demonstrated to him to be functional.
Enchanted Florist started accepting bitcoin after Mother’s Day in 2014.
“We did try it and there were a few transactions, three transactions, and at the time we were accepting bitcoin, I think the wave had not materialized yet,” Bannister said. “It wasn't particularly user-friendly for me as a merchant.”
Whether through operator error or a system flaw, Enchanted Florist never got paid for those three transactions.
“I never saw the deposit hit for me,” he recalled. “I took a loss on those transactions. No one at bitcoin could ever explain where I took a wrong turn.”
So he dropped bitcoin soon after adding it.
“I’m surprised we’re still on the map,” Bannister said of an electronic database of participating merchants.
He said he’d be open to trying it again, if it worked more smoothly and more customers wanted to use it.
“I will admit that it was kind of fun in theory, but the funds never materialized,” he said.
- Bitcoin is a virtual currency, essentially a digital token that is traded in the cyberworld. It does not exist as bills or coins.
- Users acquire bitcoin through companies that trade it for official currency.
- A bitcoin can be divided by as much as eight decimal points, so it is possible to use in transactions priced out to the penny, or beyond.
- Bitcoin operates through an international community using more than 9,000 computers, making control by government regulators difficult.
- A purchase with bitcoin can be as simple as using a credit card or mobile app. The hardest part is finding a retailer that accepts it.
- Transactions are immediately and forever traceable as part of the verification process that keeps people from creating fake bitcoins.
- The process of verifying bitcoins are authentic is called mining, and miners compete to be first to verify transactions, using their own computers, and are paid a fee — in bitcoin.
- Bitcoin can be anonymous — no name or proof of identity is needed to trade. The individual bitcoin is what’s tracked, not its holder.
- About 16.7 million bitcoins have been created to date, but a significant percentage are permanently frozen because their owners lost the electronic keys.
- New bitcoins are slowly but steadily being created as payment to those miners who verify transactions. The total number of bitcoins will be capped at 21 million.
Source: Bitcoin.org and reports by The New York Times and Washington Post