Flipping the Coin—Makeshift
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The digital world now has its own currency, bitcoins, which promise to boost small merchants but could also fuel illegal activity

— Flipping the Coin

03. Resistance Dispatches
FlippingTheCoin

Entrepreneurs learned long ago that e-commerce comes with a cost. Vendor fees eat up as much as five percent of each transaction, and credit card fraud costs US businesses USD 52.6 billion annually, according to the Federal Reserve. Lacking alternatives, most businesses accept these losses and play by the rules of the big players. This, in part, birthed Bitcoin.

Guided by a mysterious developer (whose pseudonym has since vanished off the Internet) during the financial chaos of 2009, Bitcoin rose out of this disillusionment with both big business regulations and those who enforce them. Managed simply by an algorithm, it works as a decentralized electronic currency; there are no boardrooms or CEOs. Its use, trade, and exchange work off peer-to-peer server distribution, digital signatures, and cryptographic proof to facilitate and verify irreversible payments.

On a good day, bitcoins signal a paradigm-shifting challenge to the marketplace. On a bad day, the digital currency is painted as a volatile playground for the tech crowd.

“Using bitcoins today is like using the Internet before the browser was created,” says Tony Gallippi, CEO and co-founder of Bit-Pay, which seeks to bring bitcoins to online merchants. To get started, download a Bitcoin “wallet”, a piece of software that assigns you a dedicated address, a sort of routing number. To seed your new wallet, you can trade with existing members or use Bitcoin exchanges, among which rates vary widely.

Bit-Pay has about 400 businesses signed up, ranging from a New Yorker selling video game activation keys online to a Miami restaurant where bitcoins cover the tab to a Chicago cabbie. “Every bitcoin user who travels to Chicago tries to track that guy down,” Gallippi laughs.The Chicago cab driver illustrates the extent to which bitcoins thrive as a novelty. Yet, as new applications emerge, the potential for the model’s relevance increases. International remittances, for example, draw a large group hungry for a cheaper, easier way to send money abroad.

“A remittance tool is the first step,” says Donald Norman, Co-Founder of the Bitcoin Consultancy, which seeks to make bitcoins mainstream. He also owns Intersango.com, which operates as a bitcoin exchange.

Regulators fear that bitcoins could feed the web’s notorious criminal economy due to the ability to anonymize payments. It is already used by at least one site known to sell illegal narcotics. According to a recent FBI report, “Bitcoin might logically attract money launderers, human traffickers, terrorists, and other criminals who avoid traditional financial systems.”

Meanwhile, proponents say the next positive step is to alleviate friction for legitimate merchants. Plug-ins for popular platforms like iOS, Android, and Facebook have begun to surface, but the apps aren’t yet efficient or reliable enough to attract merchants. Gallippi also hopes to allow users to pay using e-mail addresses, mimicking PayPal, and looks to a future where businesses immediately exchange bitcoins for local currency—without ever having to physically handle either.

He says the potential for carving a new payment model out from the credit card monopoly seems limitless. But that potential requires a healthy dose of patience—and some faith in a new form of currency that bucks the model of conventional financial exchange.

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