Bitcoin transitioning from obscurity to commonplace [Pioneer Press, St. Paul, Minn. :: ]
(Saint Paul Pioneer Press (MN) Via Acquire Media NewsEdge) Feb. 22--David Duccini makes money -- literally.
The St. Paul tech entrepreneur has set up a state-of-the-art assembly line to make currency that he can spend on the Web or at Twin Cities businesses. His moolah factory, operating 24/7, exists separately from the U.S. banking system and the federal agencies that oversee it.
But Duccini isn't running a counterfeiting operation.
Instead he has harnessed powerful computers to create Bitcoin, a currency unlike the U.S. dollar and other traditional kinds of money -- but dinero all the same.
You can't mint or print a Bitcoin the way a Benjamin or a Sacagawea dollar coin is made. You can't pull a Bitcoin out of your pocket, the way you would a penny, and skip it on the surface of a becalmed pond, or toss it into a fountain for good luck.
Bitcoins exist primarily as ones and zeroes on a virtual ledger.
And Bitcoin is not tethered to any nation, region or central bank -- the way the dollar is to the Federal Reserve. A Bitcoin's "value," say in dollars, is determined solely by demand for it on currency exchange markets, and that determines what you can buy with it.
Bitcoin is a currency of the Internet age -- yet it can be can be converted into dollars, euros, yen, yuan or any other traditional national currency, and back again. Even gold.
But Bitcoin's lifecycle is limited. The auto-pilot program that distributes them to "miners" like Duccini is capped at 21 million. After that, the Bitcoin market will not grow, and the exchange will only exist for those who possess the currency. To keep the market alive longer, the distribution is intentionally throttled, producing ever-fewer Bitcoins in each successive year and making them harder to get.
MONEY OF THE MINED KIND
Bitcoins are "crypto-currency" that is spawned using a digital process called "Bitcoin mining."
This involves harnessing computers to solve certain kinds of mathematical problems. Like when a mouse in a maze finds the cheese, each time a complex problem of this sort is solved, Bitcoins are the reward.
That is what Duccini's turbo-charged, water-cooled gear is doing, day and night -- crunching away on intricate puzzles that, slowly but surely, yield Bitcoinage. This electronic currency is then stored in a digital wallet on a hard drive or Internet server.
Duccini is one of many who mine Bitcoins around the world as part of a decentralized Bitcoin economy that has grown dramatically since the crypto-currency came on the scene in 2008. Bitcoin is the brainchild of a geek or geeks yet to be identified -- and known only with what is assumed to be a pseudonym, Satoshi Nakamoto.
Once obscure, worth little, and used almost solely for anonymous, possibly shady, online transactions, the Bitcoin currency has recently skyrocketed in popularity and value. Bitcoins, worth less than a penny apiece in early 2010, hit $1,000 each late last year and again last month, and have dipped just below that since then. Bitcoin isn't the only such crypto-currency, but it's the best-known and most successful one.
Even though they are insubstantial, Bitcoins are real money in the practical sense. They can buy real things such as a Starbucks frappuccino or a McDonald's Happy Meal.
But for this they need to be converted into dollars first. These currency conversions, back and forth, are being done with increasing ease. Bitcoin-related exchanges operate online. Bitcoin ATMs recently started popping up so that owners of the crypto-currency can snag hard cash when they're feeling peckish.
And an increasing number of mostly online businesses around the planet accept Bitcoin as a direct form of payment.
Bitcoin can pay for a Keurig coffee maker and an iPad tablet on Overstock.com, a Samsung smartphone and a Microsoft Xbox One on TigerDirect.com, and a chance at true love on the OKCupid dating site.
Duccini said he recently went on Overstock to buy a Jura Impressa espresso maker for 1.8996 Bitcoins, which at the time was the equivalent of about $1,600.
Now bricks-and-mortar retailers are getting involved. In the Twin Cities, you can use Bitcoin to pay for strength-training sessions at the Movement Minneapolis gym, music-software classes at Slam Academy in Minneapolis, tickets for "Little Shop of Horrors" at the DalekoArts theater in New Prague, or any treatment at Hypnosis and Psychotherapy for Health and Healing in Minnetonka.
Such businesses will often put a "Bitcoin accepted here" button in a prominent place on their sites, alongside Visa and MasterCard icons.
Bitcoin is entering the charity sphere, too. Duccini is about to launch doabitofgood.com, an online venture that will enable Bitcoin donations to charitable causes of the users' choosing.
That's appropriate since Duccini's doabitofgood.com startup capital is of the mined kind.
"The computers are busy mining and self-funding the launch," he said. "I'm putting over $100,000 worth of Bitcoins into it. Basically, I'm being my own venture capitalist."
Duccini, who has dabbled with Bitcoin for several years, said the currency is a "sweet intersection" for him, with his master's degrees in software engineering and business administration.
"It is the perfect sort of toy" to keep himself amused while boosting his bottom line, he noted. Wielding souped-up computer gear, some of it bristling with translucent-green water-cooling tubes that give it a steampunk vibe, isn't bad either, he added.
The democratic nature of the Bitcoin economy, with no centralized authority, appeals to him. Duccini, and all others who trade in Bitcoin, share that authority as the joint keepers of a public ledger to authenticate Bitcoin activity and avert counterfeiting.
"The role of the miner is to verify transactions," Duccini said. "They prevent the double-spend. This makes Bitcoin counterfeit-proof. Your transaction is accepted into the public ledger once it has been verified as legitimate. Miners act as guardians of the public trust."
MAKING IT EASIER
Stephen Fluin, the strategy and innovation chief at Minneapolis-based MentorMate, did a bit of Bitcoin mining in the crypto-currency's early days, when only average computers with decent graphics cards were needed to accomplish this efficiently.
"I'd turn it on and come back to it a couple of days later" to find freshly generated Bitcoinage, he said.
As the mathematical puzzles for creating Bitcoins have become progressively more difficult, Bitcoin miners have had to continually upgrade their equipment. Hardcore miners now deploy special kinds of setups with customized computer chips and ultra-fast graphics processors.
Duccini, for instance, has periodically updated his gear to keep up.
For Bitcoin miners, creating the crypto-coinage is only half the fun. They want to spend it, too.
Fluin, for instance, used Bitcoin on Overstock to buy his girlfriend a pair of earrings.
"She liked them," he said. "She now calls them her 'Bitcoin earrings.' "
Fluin has been privy to bigger Bitcoin transactions. MentorMate, a developer of mobile apps, takes BitCoin as a form of payment, and such transactions can be in the tens of thousands of dollars, he noted.
Other Twin Cities companies that accept Bitcoin are enthused about supporting the currency. Setting up to receive Bitcoin was easier than they expected, and it gives their clientele another way to pay. That's just good business, they note.
J. Anthony Allen, owner of Slam Academy, said he "felt dumb" when someone recently asked if the digital-music academy accepted Bitcoin as payment. It did not. Now it does.
"We should take any money people are willing to give us," Allen said. "Turning it away would be stupid."
Allen felt chagrined about this oversight since, "I'm a hardcore technology nerd. I've had my eye on Bitcoin for a long time and have found it fascinating."
Allen, like other business owners, is equipped to accept Bitcoin via a service called Coinbase.
The San Francisco-based company serves as a currency exchange that converts Bitcoins into dollars, and dollars into Bitcoins. It lets average consumers create Bitcoin electronic wallets for safekeeping and to enable transactions, and sets up merchants for Bitcoin-based payments.
'NO DOWNSIDES SO FAR'
David Dellanave, who runs the Movement Minneapolis gym, also did a bit of Bitcoin mining a while back, which got him some of the crypto-currency.
He recalls adding Bitcoin payment to his company's site as "more of a gimmick than anything else." No one has paid that way yet, he said.
But, though Bitcoin is "on the bleeding edge of tech," he said, it has become simple enough to implement at a business that it is "exactly the same as accepting a credit card, but with lower fees."
Ben Thietje, who operates the DalekoArts theater, also has followed Bitcoin trends for a while. Recently, DalekoArts began letting people make donations and buy tickets with Bitcoin.
"The reason we decided to go for it is it didn't cost us anything, and is easy to do," said Thietje, who also uses Coinbase. "We implemented it in about 10 minutes. And if there are people out there using this currency, we want to make it easy for them."
Amy Zilka, owner of the Hypnosis and Psychotherapy for Health and Healing clinic, operates a largely cash-centered business, so embracing Bitcoin is not too much of a logical leap for her.
"I was surprised how easy and efficient it is," she said.
Three of her customers have paid with Bitcoin via Coinbase so far.
"They're kind of nerdy people," she said.
When taking Bitcoin payment, she instructs the client to consummate the transaction about an hour before a therapy session.
This is particularly useful when she does sessions via videoconference with customers in other parts of the world, she added, since Bitcoin functions the same anywhere on the planet.
To encourage these kinds of payments, she offers a 15 to 20 percent discount to those using Bitcoin.
"There are no downsides so far," Zilka said. "I can honestly say it's been good -- for me, at least."
(c)2014 the Pioneer Press (St. Paul, Minn.)
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