Is the digital Bitcoin economy ready for prime time?
Brothers Josh and Zach Harvey, owners of online guitar shop Stomp Romp, were tired of credit
and debit card payment fraud. While
problems can be reduced in-store by
checking photo IDs and card signatures,
it’s a different story with online sales—
and with overseas orders, the fraud risk
is even higher.
“We have to play detective with international sales, always assessing whether
it’s a scam or not,” Zach says.
After hearing about the Bitcoin, which
promises to eliminate payment fraud,
the Harveys, who are based in Manchester, N.H., decided to accept the digital currency on their website last year, alongside
PayPal and credit and debit cards. Stomp
Romp’s percentage of Bitcoin payments
is still tiny, but Zach says it’s just a matter
of time before other retailers—and their
“It doesn’t matter anymore where in
the world orders come from,” he says.
“With Bitcoin, we don’t have to be wor-
ried about fraud, and there’s more secu-
rity in expanding our global sales. I think
this will be a big thing for business.”
Created in 2009 by an anonymous de-
veloper, the Bitcoin is similar to country
currencies and commodities, trading on
more than 30 online exchanges world-
check or online transfer from their bank
account (no credit cards, thank you).
wide and fluctuating in value, but with
no government oversight or regulation.
Currently it appeals to open-source
geeks, fans of privacy rights and small
online retailers like Stomp Romp. There’s
no middleman like PayPal or credit
card company involved; people transfer
money among themselves online, and encrypted payments are fast, easy to send
and generally free of fees. Put another
way, Bitcoin is a currency and a banker.
“[Instead of using
Visa] as the payment
network and the U.S.
dollar as the payment
unit, Bitcoin is both
the network and unit,”
says Jon Matonis, a
director at the nonprofit
which standardizes and
promotes the use of Bit-
coins. “It’s a two-person transaction,
To help the world’s largest virtual cur-
rency go mainstream, a crop of payment-
processing startups such as BitPay,
Coinbase, Paysius and WalletBit have
popped up, easing the transfer of dollars
into Bitcoins and back into greenbacks.
Shoppers purchase Bitcoins with cash,
WHAT’S THE CATCH?
If the Bitcoin sounds too good to be true, well …
• Government regulators and tax collectors, not to
mention law-enforcement officials, are not amused by
the currency’s use by cyber criminals and for off-the-books transactions. The SEC and the U.S. Senate have
launched investigations into the Bitcoin.
• By design, there are never more than 21 million
Bitcoins in the world, which leads to wild price fluctuations and attempts to manipulate the currency,
including a busted Ponzi scheme last year that caused
Bitcoins to plummet in value, and a 2011 hack of a
Bitcoin exchange that caused them to fall from $17.50
to mere pennies within minutes.