Bitcoin: Super currency or super fad?

6:10 AM, Dec 12, 2013   |    comments
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LAS VEGAS (USATODAY.com) - Entrepreneurs flush with newly valuable Bitcoins are creating new products designed to simplify the technology and spread Bitcoin mania into the modern American mall.

More than 600 Bitcoin aficionados gathered Tuesday in a conference center here to plot the future of a computer-generated currency that has steadily risen in value for the last two years.

While the number of Bitcoiners has grown, and some have become instant millionaires, the currency has yet to gain traction among American consumers and businesses.

"If you want to make it popular, you have to make it easy, consumer friendly," says Rob Banagale, who designed Gliph, a mobile phone application that allows people to send or receive Bitcoin via text message, bypassing the sometimes cumbersome transactions through Bitcoin exchanges. "Technology always starts off a little rough. We're trying to sand off the edges."

Even as more people acquire Bitcoins, one of the greatest challenges is finding a place to spend them. About $7 billion worth of Bitcoins are now in circulation.

Some initial Bitcoin users traded their dollars, euros and yen for Bitcoins to do business on black market Internet exchanges, such as Silk Road and Black Market Reloaded, where vendors who dealt in illegal drugs and services demanded Bitcoins.

As the number of Bitcoin users has grown, so has the need for legitimate markets in which to spend them.

Colleagues Michal Handerhan, a social-media and website manager, and Tim Sidie, a computer programmer then working at NASA's Goddard Space Center mused at lunch one day in March about where they could spend their Bitcoins.

Handerhan had been paid a Bitcoin and a half for doing some graphics work. Sidie, who has an interest in economics, had purchased some when they sold for $1 each.

"Where do you spend it? We wanted a place where you could buy all sorts of stuff," Handerhan said. "There's such potential for a Bitcoin-only marketplace."

By July, they created BitcoinShop.us, a website that lists goods for sale on Amazon, eBay and other retailers, available for purchase by Bitcoin. To work around Bitcoin's volatility, they had to design a computer program that recalculates prices on the site every 15 minutes. They charge a 10% transaction fee.

The site filled its first order in September and has logged more than 600 transactions worth $120,000 for goods in every category since. Transactions are large and small. A non-profit organization spent $16,000 on computers, tablets and office furniture.

They have sold snow blowers, an industrial sewing machine, a 3-D printer, condoms, an acoustic guitar, pearl earrings and toys, including My Little Pony and Star Wars Lego. Recently, a customer bought pumpkin spice coffee with Bitcoins.

Expansion plans include expanding shipping from the U.S. to Canada and Australia and carrying merchandise from Macy's and QVC, Handerhan said.

Sidie calls Bitcoin "a huge evolution" in the history of money that he expects to thrive.

"The rate of people who accept Bitcoin as payment is skyrocketing," Sidie said.

Part of the effort to move Bitcoin into the marketplace also means persuading people the cyber-currency is legitimate, safe and has a value.

"We're having to evangelize as much as we're having to design new products and software," Banagale says.

Dave Smith, 32, of Lansing, Mich., created GoGiveCoin.com to encourage Bitcoin users to recruit others into the fold.

"I'm a free-market guy. I never liked the idea of the Federal Reserve," he said. "I was excited about the idea of Bitcoin."

The site, which launched in November, allows Bitcoin users to give Bitcoins as gifts, even to those who don't have electronic wallets and have never used Bitcoin before. He has had two sales so far: one to a relative and another to an audience member at a talk he gave.

He said he's not discouraged by the slow start.

"It's like being on the ground floor of the Internet 20 years ago," Smith said. "Bitcoin is going to be transformative."

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