September 14, 2014
Cryptocurrency marches on
The Washington Post (*)
The Bitcoin ATM, the first of its kind, takes cash or credit and spits out bitcoin, even if it’s something you don’t fully understand — yet.
VANCOUVER — The small monolith sits at the back wall of a downtown coffee shop. Canadians are a demure people, not known to shriek or hop, but they approach the Bitcoin ATM with the spooked wonder of those apes in 2001: A Space Odyssey. Though drab and utilitarian, the machine projects an aura of the future, or maybe of suspicion, depending on one’s comfort with technology. The Bitcoin ATM, the first of its kind, takes cash or credit and spits out bitcoin.
Bitcoin is — well, it’s a thing you read about and don’t fully understand.
It’s referred to as a “cryptocurrency,” or a peer-to-peer electronic payment system whose transactions are encrypted and governed by many users on a public ledger. It’s not regulated or accepted by the government, and yet 0.00553 of a bitcoin will get you a mocha here at Waves Coffee House on Howe Street. So Bitcoin is a thing, but its utility hinges on an agreed-upon fantasy, or at least collective blind faith — which you might also say about traditional banknotes, right? Yes?
[Editor’s note: In his freshman-year macroeconomics class, the reporter of this story received a C.]
North Vancouver resident Taylor Lewis feeds her credit card to the ATM, whose screen conjures a digital code that represents an amount of bitcoin. She scans the digital code with her smartphone and walks away from the machine with a fraction of bitcoin in her virtual possession. Lewis came all the way into the city to get bitcoin for her brother, who lives in Toronto and was having trouble procuring the currency from online exchanges, where people buy and sell bitcoin at rates that have rollercoastered for the past year. Her brother asked her to buy from the ATM when one bitcoin was valued at $500 Canadian. At this point in early January, one bitcoin is worth nearly US$1,000.
“So I thought, ‘Oh crap, we’d better get down there and get him one,’” says Lewis, as other coffee drinkers approach the machine and feed it cash.
Free trade without friction
Is this what a fool’s gold rush looks like? Or is this a sign of the world becoming a better place?
Jackson Warren, who is part of a Vancouver bitcoin brokerage called Bitcoiniacs, thinks the latter.
Bitcoin “sort of frees people to trade with each other without friction,” says Warren, 30, a partner in setting up the world’s first Bitcoin ATM, which processed more than US$1 million in transactions last month. “And I think wealth is sort of a product of human creativity in an environment of freedom.” Bitcoin “will have a major impact in the world,” he predicts, and thousands of such ATMs will pop up by the end of the year.
Maybe. Maybe not.
Either way, Warren and his three partners, who collect a 5-percent fee on each ATM transaction, have four more machines they bought from a Las Vegas manufacturer and plan to install in Canada, maybe in Calgary and Toronto. ATMs from other bitcoin pioneers are due in Hong Kong and Sao Paolo by the end of the month. A Brooklynite is prepared to install one in an East Village bubble tea shop, according to the New York Post.
After five years of circulating in virtual obscurity, bitcoin is starting to colonize the real, physical world. It will soon be, like email, another indispensable and instinctual part of living, its boosters say. More businesses are accepting it; payment processors BitPay and Coinbase each claim that more than 20,000 merchants use their services. More and more headlines are being made. In two opinion pieces published within 24 hours of each other on DealBook this week, bitcoin was called:
1. A technology with “enormous promise” that provides an “opportunity to reimagine” the global economy.
2. A “sign of ignorance of economic history” that could lead to “crippling” financial panics.
Regardless, bitcoin now has what most other digital colonizers of the physical world have: a lobbyist in Washington.
“It’ very rare that you actually get the chance to be part of building something that could radically improve the lives of people around the world.”
This is Patrick Murck, general counsel for the Bitcoin Foundation. He grew up in District of Columbia’s Friendship Heights neighbourhood, got a law degree from the Catholic University of America, practised telecom technology law, bought a house in the Washington-area suburb of McLean and grew to loathe suburban life in Northern Virginia. He and his family decamped to Seattle five years ago, around the same time that the first units of bitcoin were “mined” using an open-sourced software written by a pseudonymous developer (or developers) named Satoshi Nakamoto.
And this is where your eyes glaze over. Mining? Do dwarves make bitcoin? Satoshi Nakamoto sounds like the hero (or villain) in a screenplay co-written by Quentin Tarantino and Ludwig von Mises.
And yet to hear Patrick Murck talk about bitcoin is to sip the sweet Kool-Aid of cryptocurrency. A transparent, equitable system that’s free of a central authority sounds good when compared to a graft-ridden theoretical government that prints money willy-nilly, right?
“I had a lot of suits and not a lot of jeans,” says Murck, 38, of his initial transition from District of Columbia corporate lawyer to casual Pacific Northwesterner. He’s sitting in a bar on historic Ballard Avenue on a damp January night, a 10-minute walk from the Bitcoin Foundation’s Seattle office, which consists of three guys and three computers in a two-by-four-metre box of shared workspace. Alongside the blue-collar grit of Ballard’s shipyards, the bitcoin Foundation seems like a phantom, a lark. Or, worse, a shortcut for malfeasance, as evidenced by the headlines last year about Silk Road, the online marketplace for illegal drugs bought and sold with bitcoin. And it’s this reputation — that bitcoin is a topsy-turvy playground for anonymous nerds and criminals — that Murck and the foundation are trying to combat.
“It’s the most regulated technology I’ve ever seen,” says Murck, though the IRS has yet to decide how to treat bitcoin. “If you want to be a bitcoin business, like an exchange — where the rubber meets the road and cash turns into bitcoin — you’re a ‘money services business.’ You are regulated to the hilt” by an entity like the Treasury Department’s Financial Crimes Enforcement Network.
The foundation is headquartered in the District of Columbia but, like Bitcoin itself, its board of directors and 1,000-plus members are decentralized. In August, Murck became general counsel and de facto spokesman for the 16-month-old foundation, which was formed by a posse of bitcoin enthusiasts and investors to present a public face for a technology that is not managed or controlled by any single person or group.
Bitcoin brings Murck back to Washington at least once a month. Next week, while he’s in town for the State of the Net conference, he will speak during an online forum titled “Virtual currencies: Exploring a potential role for postal operators,” hosted by the US Postal Service. Though Capitol Hill isn’t a bastion of Web savvy (“It’s — it’s a series of tubes!”), two Senate committees hosted the first-ever hearings on virtual currency in November, and both regulators and senators projected cautious optimism for bitcoin’s potential. Senator Thomas Carper, D-Del., chairman of the Senate Committee on Homeland Security and Governmental Affairs, closed the hearing by saying that what he’d learned about bitcoin was “encouraging.”
“DC gave us the biggest green light they could possibly give to prove it,” says Murck, who testified in front of that committee on November 18. “Complaining about DC is easy. Actually building something that changes someone’s life is hard.” He says 2014 will be the year of putting aside concerns about regulation and building out an infrastructure that makes bitcoin relevant and beneficial to normal citizens all over the world.
“In the post-Colonial era there’s been this idea of financial inclusion, that certain people in the world — especially in the Global South — should be connected to the global economy but only if we say you can,” says Murck, referring to the costly and aggressive gatekeeping practices of traditional banks. “That’s a bullshit conceit from the get-go and doesn’t empower people to bring themselves up out of their own situations. bitcoin is saying there’s a globally connected digital economy and you don’t have to ask permission to be a part of it.”
In the short term, Murck says that immigrants could send money to family in their native country without the costly fees associated with money transfers. In the long term, Murck foresees the ability to use bitcoin to transfer title deeds, which would benefit homeowners in countries with antiquated or nonexistent property rights systems.
It sounds too good to be true.
It seems, on occasion, like a cult.
Or a scheme by which bitcoiners somehow get rich by exploiting a system that casual users don’t fully understand.
But these suspicions are why Murck is volunteering to appear in front of congressional committees. This is why Warren and his partners in the Vancouver ATM venture — and in a three-week-old bitcoin exchange called CoinTrader — hold office hours in a small conference room off the Waves Coffee House. They are here, in person, to provide reassuring human interaction in a world that’s quickly eliminating it.
“I think the openness, transparency and having a system based on mathematics — and not human decision making — is a huge benefit, so everyone knows the rules of the game,” says CoinTrader partner Paul Szczesny, 27, alluding to the public ledger of transactions. “And I think that will make the economy more efficient.”
Outside the conference room, on the other side of the coffee shop, a computer drafter named Mac Geissinger takes his turn at the ATM. Geissinger, 20, bought $180 Canadian worth of bitcoin last year, but its volatility compelled him to cash out.
“I’m done with it,” says Geissinger, who lives in White Rock, BC. “I’d use it if more merchants started taking it.”
Using his phone, he scans a code on the ATM screen to transfer his bitcoin. After 10 minutes to verify the transaction, the machine discharges his cash, minus the transaction fee.
“I’m rich again,” Geissinger says, sounding defeated, but holding up colourful dollar bills like they mean victory.