Bitcoin — the frictionless Internet cash making waves worldwide — is gaining popularity among tech-savvy Edmontonians.

But local finance experts caution users not to bet the farm if speculating on the volatile value of the digital dollars.

Peaking at over $1,000 in late 2013, the value of a single bitcoin, or 1 BTC, is currently worth $934 CAN (VirtEX). The fact that the peer-to-peer digital currency initially started selling for pennies in 2009 has fuelled investor speculation, raising Bitcoin’s profile in the financial world.

Supporters hail the currency — which uses cryptography to control the creation and transfer of money over the Internet through digitally-signed messages — as the beginning of a future where money is free from central banking and state control.

“We live in a digital age where so many transactions occur online so what is the need for this central authority intervening?” asked Ted Noakes, summing up the argument for online cash.

A professor in business administration and finance at NAIT, Noakes said the lack of a central authority gives Bitcoin some distinct advantages. Transaction fees are lower than those imposed by credit card companies and monetary exchanges can be made internationally within seconds rather than days. Transactions are logged on the network’s shared public ledger, which is synced with all users.

While the virtual theft of bitcoins is a problem, the offline storage of “private keys” mitigates the risk. Every online Bitcoin address has a matching private key given to the owner that’s designed so that the Bitcoin address can be calculated from the private key, but importantly, the same cannot be done in reverse.

The experimental system means Bitcoin is not an official currency and most jurisdictions still require users to pay income, sales, payroll, and capital gains taxes on their bitcoin.

The recent announcements that Facebook game giant Zynga and major American online retailer Overstock.com will accept bitcoins as payment in 2014 is evidence that some businesses are cashing in on the currency. Mass acceptance could potentially stabilize Bitcoin’s value volatility, Noakes said.

“At the end of the day, if people accept it and believe it has value, then it’s accepted.”

In December, cash-for-gold business AaronBuysGold started the greater Edmonton area’s first Bitcoin exchange out of their Sherwood Park store. Owner Aaron McDermand says they buy, sell and secure bitcoins on a USB flashdrive or paper wallet for customers.

They’re exchanging close to $30,000 every week, he said, estimating that 80% of the people lining up are purely speculating while 20% use Bitcoin to send money internationally or buy items from online retailers.

“I think people are realizing that it’s here to stay. It’s not going anywhere,” McDerman said. “It could be replaced by something better or faster but something like Bitcoin will be in everyday use eventually.”

In Edmonton, Remedy Cafe owner Zee Zaida has been accepting bitcoins as payment for everything from bagels to chai lattes since July. Zaida pays the GST on the purchase up-front, then allows the customer to transfer bitcoins from their smartphone to Remedy’s iPad. Bitcoin prices change every hour, he said.

Remedy made $14,000 from three months of purchases the last time Zaida cashed out the bitcoin, he said.

“I’m happy and everybody’s happy. It’s been very positive, the only downside is when our stupid Internet isn’t working.”

Starting next month, the cafe chain’s Jasper Avenue location will have the city’s first Bitcoin ATM.

Remedy’s success was prodded along by local Bitcoin evangelist Peter Dushenski. Purchasing his first bitcoin in April 2013, Dushenski has since launched educational site Bitconomy.ca as well as the Bitcoin Edmonton Meet-Up group.

The roughly 60 local users come together every three weeks to share ideas and raise awareness about the currency, he said, adding they’ll host the city’s first CoinFest educational networking event on February 15.

“There is no city between Vancouver and Toronto where Bitcoin has a stronger and more connected entrepreneurial community than here in Edmonton,” said Dushenski. “I don’t think there’s been as important an idea since the dawn of the Internet itself. I do firmly believe that.”

However, Professor Max Varela, who teaches macroeconomics and international finance at NAIT, disagrees with the future touted by Bitcoin supporters.

“More than the future, I think it’s a thing of the past,” said Varela, pointing out that private currencies existed for years before state-issued currencies made them extinct.

The swings in bitcoin valuation are “too crazy”, he says, as the constant rise, fall, rise pattern fuels the consumer’s urge to own bitcoin but never spend it. People are curious about bitcoin, but view it as an investment rather than a currency.

“It’s a dangerous game they’re playing and I think it’s a bubble,” he said. “I think governments will eventually step in to regulate and possibly destroy Bitcoin.”

While $28.5 billion in bitcoin was notoriously seized in the FBI’s dismantling of online black market Silk Road, the Edmonton Police Service has no ongoing investigations involving Bitcoin locally.

The Alberta Securities Commission (ASC) is currently studying whether transactions using crypto-currencies have potential securities regulatory implications. The ASC asks people to seek the advice of a financial advisor before buying Bitcoin or the less popular Litecoin and Peercoin currencies.What is Bitcoin?

-A digital currency created in 2009 that eliminates payment processors (VISA, for example) and allows users to stay anonymous.

What are bitcoins?

-An online equivalent of cash that can be sent directly to anyone. Bitcoins are not physical coins, though some have been produced independently. Those are marked with a private key allowing them to be spent digitally. All bitcoins have an individual, private key.

Where do they come from?

Bitcoin miners use powerful computers in a race to solve community-shared, complex algorithms approximately every 10 minutes. Once solved, a block of bitcoins is released to the minor/minors whose computer or network of computers managed to do the job. Currently, 11,800,000+ bitcoins are in circulation. Twenty-five bitcoins are currently released at a time, but less will be released as time goes on. There will only ever be 21 million bitcoins created.

“Crypto-currencies are a relatively new phenomenon and should therefore be treated with caution,” said ASC spokesman Mark Dickey.

While Noakes sees a place for digital cash in the future, he agrees that people should be careful when it comes to speculation.

“Have some fun with it but understand this is no different than going to the track and betting on the ponies.”

matthew.dykstra@sunmedia.ca

@SunMattDykstra

Here's how Bitcoin works:

Create a digital wallet

1) An account is created.

2) A digital wallet is installed on your computer or mobile device.

3) You will be given a unique alphanumeric deposit address for receiving bitcoins in your wallet. Every Bitcoin has a private key, which is saved in the wallet once you receive the bitcoin.

Buy bitcoins

1) Money is transferred to your digital wallet (wire transfer, bank transfer, money order, etc.)

2) Once funds arrive, you can buy bitcoins.

You buy bitcoins from other people; Bitcoin merely provides the platform for buyers to get their bitcoins and sellers to get their money. Bitcoins can also be sold.

How much is a bitcoin worth?

On today's market, one bitcoin is worth about $930 US (www.bitcoin-otc.com/ticker.php), but they started out at much less than that. A bitcoin can be divided down to 8 decimals, so 0.00000001 bitcoin is the smallest amount currently possible. A ‘satoshi’ is .00000001 bitcoin.

Where can I spend bitcoins?

spendbitcoins.ca lists over 1,000 places that receive them, worldwide, from gaming company Zynga to major retailer Overstock.com.

http://bitcoinfaq.com/

https://en.bitcoin.it/wiki/FAQ