Anthony Gallippi, CEO of BitPay, has started paying his gardener -- in BitCoins.

His gardener carries a card with a QR code with the needed information for Gallippi to transfer BitCoins to his account once he's finished tending the lawn. The gardener has chosen to get 90 percent of the money in cash, delivered by bank transfer by BitPay the next day, and keep 10 percent in BitCoins.

"Every time I pay him, he gets BitCoins in his wallet right away, and next day he gets a direct deposit in his bank account," Gallippi said.

BitPay, a Florida-based company, is seeing rising interest in BitCoin, the fledgling digital currency that is a small, yet interesting wild card challenger to traditional payment systems.

BitPay is one of a handful of companies trying to make it easier for merchants to accept BitCoins and people to use them. BitCoins are essentially encrypted numbers that have fluctuating value according to open-market trading. It has been referred to as a crypto-currency for the complex system under which BitCoins are generated and traded.

Gallippi, who runs BitPay with Stephen Pair, said the company recently signed up merchant number 1,000, a significant mark for a currency that has only been in existence since 2009.

BitPay hopes to compete against payment services from big credit card networks such as Visa and MasterCard and others such as PayPal by offering lower transaction fees but keeping merchants' confidence about BitCoin's security.

Last week, hackers stole around US$250,000 worth of BitCoins from BitFloor, a New York-based company that allowed account holders to buy and sell BitCoins, as well as exchange the currency for U.S. dollars and transfer the money using the ACH (Automated Clearing House) system.

BitFloor's founder, Roman Shtylman, said hackers found the private keys on an unencrypted disk for the company's BitCoins. The keys are needed to transfer the currency. He blamed himself for the error.

BitPay, which used BitFloor to exchange BitCoins for U.S. dollars, lost 750 BitCoins, or around $8,000 to $9,000, Gallippi said. But BitPay had enough cash on hand to ensure that merchants exchanging BitCoins with BitPay were paid. BitPay also uses several other BitCoin exchanges to swap the coins for cash.

If a merchant wants to accept BitCoins, BitPay provides an API (application programming interface) for e-commerce sites that processes the transaction. Those merchants can be paid in BitCoin, but Gallippi said most are opting to receive cash, which BitPay delivers by wire transfer the next day. That way also allows merchants to avoid sticky accounting questions around BitCoin.

The advantage for merchants is that BitCoins are like cash payments: they can't be reversed by a card processor, and merchants don't have to handle the sensitive personal details involved in making a credit card transaction online, reducing the chance of identity theft for consumers.

Buyers, however, do need to have confidence in merchants that they won't be ripped off, since the transactions are one-way and not reversible. But they also benefit from strong anonymity, since BitCoins are exchanged via a 34-character alphanumeric "address" that a user holds and no other identifying information.

Gallippi said BitPay had been steadily growing its transaction volumes for its merchants, even hitting $250,000 in a single day earlier this year. Most purchases through its merchants are for around $25 dollars, he said. In August, BitPay transacted a total of about $500,000. For domestic U.S. transactions, the company charges a 2.69 percent transaction fee.

BitPay's 1000th merchant is BitCoin Store, an electronics dealer based in San Jose, California, that will soon open its website for business and only accept BitCoins, Gallippi said. BitPay is also in early discussions with three of the top 25 websites ranked by Alexa, which are testing BitPay's systems, he said.

Other merchants signed up with BitPay include Butterfly Labs, a company that makes high-end processing equipment for "mining" BitCoins, a process by which computing power is dedicated to solving a mathematical problem in order to generate BitCoins. There's also Vegemesta, a vegetarian restaurant in Finland. BitPay also has in-person BitCoin payment products, including applications for the iPhone and Android.

Still, there are a lot of questions around the future of BitCoin, and its exchange rate has seen wild fluctuations from a high of around $30 to as low as $2. Gallippi admits the situation "is like the wild west right now," and it remains to be seen how governments will craft policy around BitCoin or how financial institutions will deal with a rising competitor.

"It's going to be an interesting dynamic," Gallippi said. "You look at what e-mail did to the post office, and they're not too happy right now."

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