Two local companies recently decided to see how feasible virtual money really is in the present. As an experiment, St. Louis-based Paradigm New Media decided to pay Articulate Ventures in Bitcoin for their services. With St. Louis’ history of tech innovation, Vance Crowe of Articulate Ventures argues, the city has the opportunity to be an important innovator in the adoption of Bitcoin. The transaction, ultimately, was less science fiction than might be expected. Crowe received his fee, and when he heard that Bitcoin would now be accepted by major retailer Overstock.com, he used part of his profits to order a new dry erase board.
Units of bitcoin are based on unique blocks of code, which a network of computers discover through trial and error; these “miners” also verify the transactions of existing bitcoins between people. For their work, they are paid a small amount of bitcoins. Bitcoin isn’t controlled by any one institution, and all transactions are collected in a public record (without user information). Payers send money directly to payees across national borders, without middlemen, transaction fees, international regulations, or the hassle of currency conversion.
Crowe admits, however, that the transaction had its difficulties. Paradigm New Media, like most businesses and individuals, doesn’t hold their assets in Bitcoin, and most retailers won’t accept it. Therefore, the transaction involved converting between US dollars and Bitcoin, which isn’t easy. The conversion rate fluctuates wildly; during November of 2013, the price of 1 bitcoin in US dollars rose from $213 to almost $1,100. (Today, the price of a bitcoin is hovering around $930, a huge jump from its value of roughly 7 cents in mid-2010.) Due to the small overall supply of Bitcoin, the effects of supply and demand are greatly magnified. This instability, combined with the lack of places Bitcoin can be spent, meant Crowe had to hold the money in his account and keep an eye on the news for the most advantageous time to use it.
For now, Bitcoin is a new technology with an unknown future. Many are skeptical; Bitcoin has gotten bad press as the currency of choice for black market entities like underground site Silk Road, which was busted last year. But more and more legitimate retailers are beginning to accept the currency. Last December, a Lamborghini dealership in Newport Beach, California announced that a buyer had purchased a Tesla Model S– a new electric car– with bitcoins, creating excitement among those skeptical about Bitcoin’s viability in offline, physical transactions. However, the dealership’s general manager was quick to add that he had required the buyer to convert the bitcoins first. “It’s like if you come into the dealership and you want to buy a Lamborghini using gold bars,” he explained. “We will not accept that. We will accept U.S. dollars.”
Image via bitcoinexaminer.org
St. Louis Public Radio
Paradigm New Media and Articulate Ventures’ Transaction Pt. 1
Paradigm New Media and Articulate Ventures’ Transaction Pt. 2
General Information About Bitcoin
Newport Beach Lamborghini Transaction
Data on Bitcoin’s Value Over Time