Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=227913
Story Retrieval Date: 4/17/2014 1:55:15 AM CST
Bucephalus Bikes is the first business in Evanston to accept Bitcoin for payment.
Evanston bike shop shifts gears to Bitcoin
Owner Alex Añón hopes Bitcoin will help alleviate hefty merchant transaction fees on credit card transactions.
Last year Alex Añón paid banks about $5,000 in transaction fees for credit card purchases at his Evanston bike shop. Now the owner of Bucephalus Bikes is making a big change in an effort to reduce that amount.
In mid-January the shop, which sells and repairs bikes, became the first business in Evanston, and one of the first in the Chicago metro area, to accept Bitcoin as a payment method.
Bitcoin is a digital currency that is used in transactions directly between two people, without a bank, middleman or transaction fees. An anonymous creator introduced it in 2009 but recently it has garnered a lot of attention, both positive and negative.
To use Bitcoin, a person purchases bitcoins from an exchange. The price of a bitcoin changes constantly and is determined by supply and demand in the market. Today one bitcoin is worth about $661. Bitcoins are stored in a person’s “digital wallet,” which is a smartphone or computer app.
To make a payment, a person transfers bitcoins to the digital wallet of a second party. The second party can then exchange the bitcoins for U.S. dollars. The translation back to dollars is frequently done soon after a transaction because the price of a bitcoin can drop at any time.
Añón heard about Bitcoin in 2010 and finally decided to try it in order to reduce merchant fees. No customers have paid with bitcoins yet, but many are familiar with it and have expressed curiosity, Anon said.
“I think when people realize how easy it is and how relatively safe it is to use it, it’s going to be very practical,” he said. “And now that smartphones are very popular, that’s all you need. The transaction takes place between two devices.”
But Bitcoin has had its share of controversy. Because there are no financial regulations for virtual currencies and transactions are anonymous, Peter Leeds, publisher of Peter Leeds Penny Stocks, said he fears it could be used for illegal activities such as money laundering, drug dealing and murders for hire.
Leeds also warns that bitcoins are easy to steal.
"To date there have been hundreds of Bitcoin thefts, and there has been no recoveries of the funds nor any prosecutions,” he said. “It is not even established which law enforcement agencies would be responsible for addressing these global thefts.”
Erin Fonté, a payments lawyer at Cox Smith in Texas, said the volatility of Bitcoin’s value is the most disconcerting issue.
“Bitcoin is appealing on many levels, but the value of an individual bitcoin itself is so incredibly volatile that it is unclear whether it is headed down a path to be primarily an investment currency like gold or precious metals, or whether the volatility can even out so it is a transaction currency people can trust,” she said.
That volatility was evident Feb. 7 when the price for a bitcoin fell from $831 to $658 after Japan-based Mt. Gox, one of the major Bitcoin exchanges, halted all withdrawals from its accounts because its software was hacked.
Añón is aware of these concerns and doesn’t expect all of his customers to adopt Bitcoin. However he thinks more will experiment with it as it becomes more mainstream and regulations are enacted.
“I think we are already getting comfortable using other methods of payment that are not as physical as cash,” he said. “Granted we use credit cards and bank online so we’re very close to what the method of Bitcoin would be like.”
Several notable companies recently announced partnerships with Bitcoin. Online retail giant Overstock.com began accepting bitcoins in January.
Beginning March 1, the NBA’s Sacramento Kings announced they will accept bitcoins for ticket and online merchandise sales. Fans have been able to pay with the digital currency for in-arena merchandise purchases since January.
The move is part of a new franchise strategy called NBA 3.0 implemented by first-year team owner Vivek Ranadivé that focuses on technology, globalization and community partnerships. Customer transactions will be processed by BitPay, the world’s largest virtual currency processor.
“With BitPay, we are able to implement a technology that allows our fans to make Kings-related purchases without physically reaching into their wallets,” Ranadivé said in a January release. “A major tenet of the NBA 3.0 philosophy is about utilizing technology for the betterment of the fan experience, and this is yet another step in that process.”
Thomas Fagan, a Bucephalus Bikes customer, has not experimented with Bitcoin yet but is drawn to its novelty and convenience.
“I could definitely see it catching on to the point where I would use it,” he said. “I think it’s a cool idea, and that it’s a type of currency that could be used worldwide and accepted anywhere with Internet connection.”