Bitcoin's latest challenge: Congress getting it
A sticker on the window of a local pub indicates the acceptance of Bitcoins for payment in Berlin, Germany.
The Senate Committee on Homeland Security heard testimony today about the risks, threats and promises of bitcoin, the decentralized digital currency that has been tied to illegal activity like the website Silk Road, which the F.B.I shut down. But digital currency isn’t just for people making illegal transactions. Speculators love bitcoins. Chinese investors, especially, are spending millions on them. All that bitcoin love sent the price of one bitcoin to an all-time high today, topping $750. But will bitcoins ever be a part of our day to day spending?
Right now, very few businesses accept bitcoins. There’s a Subway sandwich shop in Allentown Pa., a Massachusetts company that sells socks made of Alpaca, and in some cities you can have a pizza delivered. But that pizza transaction has to go through Riley Alexander, a 25-year-old construction manager who, with a friend, founded a business called Coins for Pizza.
It basically acts as a middleman between large chains like Dominos and Papa John's, which don’t accept bitcoin, and customers who want to pay with bitcoins. Alexander says they’ve handled about 800 deliveries since February and they make a small amount on each one, “anywhere from 50 cents to, you know 3, 4 or 5 dollars.” With bitcoins valued at more than $600, that $5 profit is 0.67 percent of a bitcoin.
But then, to their surprise, Alexander and his friend watched as speculation drove up the value of their bitcoins. “That small amount of profit turned into large amounts of profit, you know, over time,” says Alexander.
But that rapid rise in value is not necessarily great news for bitcoin, the currency. Francois Velde, an economist at the Federal Reserve Bank of Chicagom says one of the prerequisites for any widely accepted currency is that it has stability. “The value of it has to become much more stable than it is now,” he says.
Velde described it as a classic chicken and egg problem for bitcoin: “as long as people speculate on it, the value will not stabilize.”
And yet much of this speculation is built on the hopes that bitcoin will become widely accepted and deliver on its promises, such as transactions that eliminate the middleman. Middlemen like Riley Alexander, who wants to see bitcoins accepted everywhere.
“If Domino’s comes up and says, 'hey we are going to take bitcoin,' sure, our business is over, but that’s great, I would love to see that,” Alexander says. “That’s what it’s really all about is getting people to accept it.”