THE 40 PEOPLE packed into the tiny upstairs room at Madison’s Grill on a recent Tuesday exhibit all the characteristics of your typical tech meetup group. They’re a gaggle of mostly male, mostly white, upper-middle-class computer enthusiasts who are obsessing over one seriously geeky subject.
All of them belong to Portland Bitcoin Group (PBG), a gang of evangelists for bitcoin, a virtual currency created about five years ago as an alternative to exchanging money electronically using a bank or PayPal. A currency free of government regulation, bitcoin exists entirely in the cloud, with folks buying and selling them through internet exchanges and storing them in a digital wallet accessible via their smartphones.
This may sound like another tech novelty, but consider this: The scarcity of bitcoins (there are only about 12 million in circulation) has turned them into one of the more profitable investments around. As of this writing, the value of one bitcoin is hovering around $800.
At the most recent meetup, the worth of bitcoins was a hot topic of conversation. The day before their gathering, the US Senate held its first hearings to discuss bitcoins. It was a welcome stamp of legitimacy from the federal government that came with an added bonus: Bitcoins nearly quadrupled in value as a result.
“Did you see it?” asks one young enthusiast, discussing the hearings between sips of a beer. “It got up to, like, $1,000! I mean, it dropped pretty quickly after that—but still!”
“It’s like the Wild West right now,” says Jon Hannis, a computer forensics expert who has owned bitcoin for the past two years. “People are still realizing the benefits behind using this currency and so many people are rushing to support it in some way. Anyone getting in on the ground floor now are really being given the keys to the castle.”
Like many people who own them, Hannis says his attraction to bitcoins stems from the complex system that brings them into being and protects each user and transaction.
Each coin is created via a process called “mining,” which involves computers working together to solve complex algorithmic math problems. They all connect to the huge central exchange that keeps track of transactions and valuation, chugging away at these equations. Once there’s an answer, new bitcoins are created, split up, and deposited into the wallets of the folks who own the various computers. The trick is that the problems get harder and harder as each one is solved.
With 12 million in circulation, the ability to create new bitcoins requires a lot of server space and energy. So much so that Hannis is considering renting space in Wenatchee, Washington (“where electricity is the cheapest”) to run a huge server room that, for the time being, will help generate 1.5 bitcoins a day.
The relative rarity and value of bitcoins has also engendered a noticeable paranoia among its owners. No one I spoke to would fess up to exactly how many they owned (the only answer Hannis would offer is “a lot”), and a lot of folks in the meetup eyed my note-taking suspiciously. A strange reaction, considering how proud they are that bitcoins are a currency that’s nearly impossible to steal or spend if stolen—each one carries a long string of cryptographic letters and numbers that provides both its value and information about its owner.
Reticence isn’t helping the cause, nor is the fact that when bitcoin is talked about in the news, the stories usually aren’t positive. The currency first broke outside the web world when the FBI shut down Silk Road, an online marketplace where vendors sold drugs in exchange for bitcoin. And recently, Forbes devoted an article to “Assassination Market,” a website that allows people to put a bitcoin bounty on the head of government officials like Federal Reserve Chair Ben Bernanke and President Barack Obama.
The flipside is that the door is wide open for developers to serve this growing market of users. Many are working to support mobile apps that would help speed the exchange of the virtual currency; others, like Hannis, are working to create physical objects like Skyhook, a “bitcoin vending machine.” The little machine—which was in operation at the recent PBG meetup—works just like the snack vendor in your work’s break room. You feed a $20 bill into the machine and the web server will send the equivalent amount of bitcoin to your account.
The PBG and its members are also working to encourage businesses in the city to accept this new currency as payment for their goods and services. That’s one of the reasons the group meets at Madison’s twice a month; it is one of the few places in town that will let you pay for a beer with bitcoin.
“The group came to me about three or four months ago looking for a place to hold these meetups,” says Madison’s owner Steve Brown. “They were the ones that help me get everything set up to accept them, too. It’s really exciting and a cool way to serve the group.”
Brown shows me a laminated piece of paper with a huge QR code on the front. Customers use a smartphone app like Coinbase or BitPay to scan the code, tap in the dollar amount of their meal plus tip, and the service uses the current US exchange rate to transfer the right amount of bitcoin (each one can be broken down in increments up to eight decimal places) to Brown’s digital wallet.
Brown takes out his Samsung phone and shows me a long list of entries into his wallet, adding up to just over $2,000 in US dollars. A drop in the bucket in total sales for the restaurant, but a huge deal for members of the PBG who would love nothing more than to use bitcoin for every one of life’s monetary transactions.
Unfortunately for them, that day is a long way off. Almost all bitcoin transactions take place online, via sites like Reddit and OKCupid, and eBay and Etsy retailers. Heck, even former Spice Girl Mel B just got in the game, allowing fans to buy her latest single, “For Once in My Life,” with bitcoin.
As of now, only a small handful of local brick and mortar stores accept the new currency. According to CoinMap—an online compendium of physical shops that accept bitcoin—there are about a dozen retailers in the Portland metro area that do so, including computer repair shop Pacific Solutions, canine daycare service Doglandia, Papa G’s vegan deli, and the ever-popular fried pie cart Whiffies.
“I guess I thought that in order to build currencies like this,” says Whiffies owner Gregg Abbott, “you need to have places where you can spend them. I thought my place was as good as any. And I thought that it would attract interesting people for me to interact with, which has been the case.”
Abbott says that he’s sold about 200 pies to folks wielding bitcoins, letting the amount rack up in his personal digital wallet alongside some that he purchased off and on over the last couple of years.
“I have quite a few now,” he says. “I cashed some of them out in the bank for fiat currency [government-backed money such as, in this case, US dollars], and I’ve kept a bunch of them. I can’t tell you exactly what it looks like, but I have a lot of faith that they will be even more valuable than they are now.”
Like many of its owners, Abbott may seem a little stingy about holding on to his bitcoins, but at least he has a cautionary tale to back up his decision.
Back in 2009, he was hanging with a few early adopters at the cart, discussing the then-new currency, when one of the crew offered Abbott 1,000 bitcoins for one of his signature handpies.
“I didn’t say, ‘no,'” he remembers. “I just got distracted and he wandered off. That was a $250,000 mistake. Silly me.”
UPDATE! The day this article came out, the value of bitcoin plummeted. Read all about it here.
HAHA! PUBLISHED ON THE DAY THAT BITCOIN LOSES NEARLY ALL ITS VALUE AND CHINA MAKES IT UNUSABLE!! Great timing guys!
I know, Graham, I know. I turned the story in two weeks ago, we wrapped up the editing last week, and sent it to press yesterday. And then the next thing you know…
Which also goes to show why bitcoin right now is not a success. The “value” of a bitcoin is counter-productive to the intent of the bitcoin. The instability makes it almost worthless as a currency. Instead, it is currently an investment with nothing to back it – no company, no government, only the theory that you could one day spend it on something other than actual currency.
Not all that funny, Graham, I just checked and the value of a 2009 Whiffies fried pie is back up to $650,000. (Luckily I have one in the freezer.)
Bitcoin is just a ponzi scheme, despite what they’d have you believe. Over half the amount of the currency that will ever exist, already does. And it’s being held by a relatively small amount of people. The investment it took to get those bitcoins is a several hundred, or even many thousandfold return based on the current “value” of it, so of course they want you to believe it has worth.
Just a libertarian wet dream based on the nonsensical notion that scarcity in and of itself makes something a valid currency.
The dollar has lost 98% of its value since the creation of the privately owned Federal Reserve, 100 years ago tomorrow. Since that time the Fed has been responsible for just as many recessions and/or depressions as the previous 100 years, and this is not counting the absurd panics, bailouts, unlimited QE’s, and asset bubbles that they’ve created.
Be it Bitcoin, or any number of alternative currencies that are sprouting up like wildfire, I know where I’m going to be betting my money on the future.
@Paul: What’s woefully ironic is that the European Central Bank has been shouting “ponzi” about Bitcoin since October 2012. Central banks like the ECB and Federal Reserve are at the top of the currency issuance pyramid. Where’s the anger? The answer is there’s no need to be upset about any of this, because any and all currency systems, Wall Street stocks, and investments in general primarily benefit those who “get in early”. If anything, people are mad jealous because everyone knows they could’ve got in on Bitcoin at a ridiculously low price by some crazy stroke of luck akin to winning the lotto. Remember, Bitcoin is a global currency, with a market cap of just under $10B. That is a tiny, tiny thing in the scheme of things and you’re lucky the Merc is even willing to write this article about it, given how often Bitcoin is lambasted by the media.
There’s nowhere you can turn to in this world and not face investments that benefit its earliest adopters. It’s quite healthy to see this, but even healthier is to recognize that Bitcoin is infinitely more fair as a system than the Federal Reserve system which is run by old, wrinkly white men in top secret locations. Conversely, Bitcoin is open source computer code owned by no man, company or government. That is simply refreshing. Because Bitcoin is open source, if you think the system is unfairly benefiting its early investors, you’re free to make your own clone of Bitcoin and launch your own currency. It’s been done 100s of times, and we keep coming back to Bitcoin because it has the largest userbase and the most real world companies supporting it. Take Coinbase for example, which just raised a $25,000,000 round from Andreessen Horowitz.
Bitcoin is not only interesting from a freedom-from-the-Fed perspective, it’s a genuine innovation: it was the first technology ever to solve the Byzantine General’s Problem. Essentially, human beings participating in an online network have never before been able to agree upon the allocation of value between them without a third party. Because Bitcoin solves this, it doesn’t need companies or governments to work, meaning we don’t need a hierarchy of any kind to manage money. No hierarchy needed, no government needed, no Federal Reserve needed, no banks needed.
All of this makes Bitcoin particularly well-suited for the Internet. You can accept money directly from your users, without involving a bank or government, and without expending any more effort than posting your email address.
Only 21,000,000 Bitcoins in total will ever be created. For a global currency, that makes each unit very, very rare. The revolutionary aspect of Bitcoin alone, combined with its rarity, makes each BTC practically a collector’s item. 1000 mBTC, which is the next unit down, has been worth as much as $1240. This is serious money, and we’re not even close to seeing widespread adoption. We’re not even to where the iPhone was in 2006. This is like the Internet in 1992.
As more and more people wake up to the fact that Bitcoin is here to stay, the price will naturally increase.
Only 1,000 Meckcoins in total will ever be created (I’m gathering the butcher paper and aluminum foil now), so get your offers ready, and they’d better be good.