Bitcoin gaining wider acceptance

Dan Horn, The Cincinnati Enquirer | USA TODAY

CINCINNATI -- Jerry Felix says it probably was a mistake to announce his company's embrace of bitcoin so close to April 1.

Who, after all, would believe he wants to help people pay parking tickets and other city fees with a "virtual currency" that exists only in cyberspace and isn't recognized by any nation or bank in the world?

"Really," Felix said. "It's not an April Fool's joke."

The decision this month by his company, Electronic Commerce Link, is the latest step forward in the evolution of bitcoin, the world's first widely used digital currency.

Once considered a nutty idea favored by computer geeks and anti-government types, bitcoin is gaining traction as a legitimate way to buy and sell goods.

True believers say it's the future of Internet commerce, where the world is united in a common digital currency rather than dollars, euros, yens, pounds or pesos.

Shorter term, bitcoin has become a scorching-hot commodity among speculators who are trading the virtual currency at a record clip in deals worth millions of actual dollars.

Felix and his business partner, Bill Nadler, are trying to capitalize on that surging popularity.

They want to include a bitcoin pay option on the websites they've already built for about 100 small local governments nationwide, including 30 in Greater Cincinnati.

Soon, those websites could accept bitcoins as payment for tickets, enrichment classes, campsite reservations and other fees as easily as they accept Visa or MasterCard.

A third-party processor would then convert the bitcoins to dollars for the cities and townships.

So far, no one has taken Felix up on the bitcoin payment option, but some are considering it.

"There's no risk for the local government, and it's a convenience for the citizen," Felix said. "It's just another way to pay your bill."

Buying and selling with 'virtual' money

Although relatively few merchants accept them, bitcoin transactions are on the rise. Mostly they're used in one-on-one transactions with other bitcoin owners to buy computer equipment, clothing and even carry-out meals.

"I bought baklava with it last week," said Peter Vessenes, executive director of the Bitcoin Foundation, a Washington, D.C.-based group dedicated to standardizing and promoting bitcoins.

Bitcoins also are traded by the thousands on Internet markets, where investors buy and sell them the same way they buy and sell stocks and precious metals.

In recent weeks, the value of bitcoins fluctuated wildly and at one point topped $200 per coin – up from about $20 in February.

The price was back down to around $100 Thursday.

Not bad for a "currency" that doesn't exist in the physical world.

Skeptics see bitcoin as a fad or, worse, a glorified Ponzi scheme.

They warn that without the backing of a central bank or government, bitcoins are riskier-than-usual investments at the mercy of computer hackers and unregulated markets.

"It's backed by a market, it's not backed by a government," said Julie Heath, director of the University of Cincinnati's Economics Center. "And markets can be wildly unpredictable."

Bitcoins also have been used by money launderers and drug dealers, who appreciate the currency's off-the-grid markets.

The U.S. Treasury took notice last month when it issued new rules on regulating trade in "e-currencies."

Some enthusiasts worry about government interference, but others say Treasury's interest lends legitimacy to bitcoin.

Businesses wary but open to possibilities

Bitcoin is the brainchild of Satoshi Nakamoto, who, like the bitcoin currency, doesn't physically exist.

Nakamoto is a pseudonym for a person or group of people who created bitcoin in 2008 and remain anonymous to this day.

Felix said the appeal of bitcoins should be strong in an era of tight budgets, because the fee to convert bitcoins to dollars is a fraction of the 3 percent to 5 percent fees charged by credit cards.

"I like the sound of that," said Eric Hansen, Mason's city manager. Since Mason's website is run with Electronic Commerce's software, the city will soon have the option of accepting bitcoin payments if it chooses.

Hansen said he's not ruling it out. "The devil is in the details," he said. "It's both fascinating and bizarre. It's like science fiction."

Felix said acceptance will come faster as people get past the "virtual" label.

The reality, he said, is that most financial transactions already happen without paper money changing hands, from ATMs to credit cards to direct deposit.

Unlike bitcoins, of course, those transactions have the backing of the "full faith and credit of the United States government." And banks have the benefit of insured deposits and regulatory oversight.

Despite the risks, businesses are starting to take notice. The Circuit, the region's information and technology trade association, asked Felix last week to speak at its next meeting in May.

The subject? Bitcoins and why businesses should consider accepting them.

"The future is uncertain," said Jim Cunningham, The Circuit's president. "But I don't think it's something you can just laugh off."