More San Diego Businesses Accepting Bitcoin
January 14, 2014 1:18 p.m.
Sean Cole, Owner, Downtown Johnny Brown's
James Hamilton, Professor of Economics, UC San Diego
Related Story: More San Diego Businesses Accepting Bitcoin
MAUREEN CAVANAUGH: This is KPBS Midday Edition, I am Maureen Cavanaugh. A digital a digital Internet currency is beginning to break into the real world. Bitcoin is accepted as online payment for a growing number of retailers but it's also been taken by a few San Diego merchants as well. Is accepted by some sellers and you can pay by Bitcoin for your next burger and brew in downtown Johnny Brown's. In addition San Diego is home to the first San Bitcoin ATM where Bitcoin can be exchanged for dollars. Joining me to talk about this today is James Hamilton and Sean Cole, and welcome to the program. Professor Hamilton, no government issues the Bitcoin currency, so where does it come from?
JAMES HAMILTON: It's basically just a set of data and numbers. They come in two parts, when everybody knows called the history of where that point has been up to now and the fact that you have it. The other is private and all that you know and you can use that private code to transfer to somebody else. There isn't any government regulation of this. It isn't issued by a company and is only maintained by the mathematical rules of the system. Each transfer is verified by the system.
MAUREEN CAVANAUGH: How is its value set?
JAMES HAMILTON: The value isn't set by anything other than supply and demand. Supply is limited and there are certain rules where Bitcoins come into existence and that becomes harder to have the more that are created. They are limited on the supply side and by whatever the demand may be. We saw a big surge coming from China, at one point that drove the price way up. Chinese government clamped down on that and the price came down, it's a volatile thing. It's just like the price of gold isn't determined by any government, it is determined by supply and demand.
MAUREEN CAVANAUGH: I looked at the exchange rate and one Bitcoin, and it can be exchanged for $825, is that high or low for Bitcoin?
JAMES HAMILTON: It has lower than it had been but higher than it started out. The same thing can be said about the price of gold, that is down quite a bit from its peak but still awful lot more than what was paid for it a decade ago and it is currently reflecting the fact they became a lot more interested is product, and a lot more people are accepting it. If people wanted they will pay more for it when it's worth more.
MAUREEN CAVANAUGH: How long has this been around?
JAMES HAMILTON: Theory for it came out in 2009 for the mathematical formulas for howe this could work. It was kind of a slow start but it has grown dramatically over time. I think a lot of the real growth came when they thought they could use this as a way to carry out transactions anonymously and it turns out that the web in the business is not as anonymous as many people assume, that is where part of the growth came from.
MAUREEN CAVANAUGH: And how do you get Bitcoin?
JAMES HAMILTON: You either create them, if you've done enough computer power - and it takes a lot - you can't do this on a regular PC, there is a known mathematical problem that people can try to solve, but it is relatively straight forward to confirm if someone has found a solution. So people get Bitcoin by that process, but the other way to get it is for someone who has one already to have their coin delivered to your wallet, and that is how you get them. How do you persuade them to do that? You give them something of value such as cash or a good or service.
MAUREEN CAVANAUGH: Sean, when did you start accepting Bitcoin and why?
SEAN COLE: It has been very recently, in the last two weeks but it's after a couple months of discussion between my business partner and a coworker of his. Did just what this professor has been saying, and he has been mining Bitcoins for years and told us that we would be wise to allow this population to use them it had a restaurant and we did research and found that there is a coin based application software out there that allows us to do what the professor said, and offer service in exchange for Bitcoin, and it converts directly into currency right at the point of transaction for us. The risk of volatility of markets does not affect us. It's been after about two weeks of contemplation we've been successful.
MAUREEN CAVANAUGH: Do you know how many Bitcoin transactions your process so far?
SEAN COLE: It's been just a few and some of them have been tests, but we have reached out to others from San Diego through MeetUp, and they will be in our establishment on Thursday and they will all be there to make the purchases, that will be at the test of it. But I can tell you is the transactions that we've done have been successful and we have seen the daily transfers to our bank account in US dollars and ultimately as business and retail that is what we want to see.
MAUREEN CAVANAUGH: Walk us through a Bitcoin transaction, someone comes to your restaurant and orders a meal and then wants to pay for it in Bitcoin, how does that go?
SEAN COLE: It used to be very hard, but there's an application for a tablet where you create a bill that says that I want you to pay this much in dollars and it creates a QR code that you have may have seen that you can scan and we have a Bitcoin wallet which allows us to receive those as the professor talks about, there are cryptic passkeys is that allow you to tell the system to request and receive a public key as well, so the patron then you show them the bill and they will put in their wallet and say that we want to send this much money through the server, and they will scan your QR code into the software and it is accepted or transferred.
MAUREEN CAVANAUGH: I am wondering why would people want to use Bitcoin to pay for a transaction like a meal, with something like that?
JAMES HAMILTON: I do not know that that is where the big interest is this and this is coming from, I think a lot of it really was having overseas and I drive the Dow Jones analogy to $100 bills, personally I never use hundred dollar bills to pay for anything, but there are a lot of other people out there who do, and the US has created about a tillion dollars and half of those probably outside this country, and people are using them often and they don't trust the local government or sometimes as I mentioned the underground economy is relying on hundred dollar bills and I think that is part of where the interest in something like a coin comes from, people who are uncovered, with regular currency for whatever reason, and having something electronic is more convenient than carrying around a big bag of money.
MAUREEN CAVANAUGH: And in this country or in another use for Bitcoin might be a short-term investment like daytrading because the exchange rate is so volatile, is that right?
JAMES HAMILTON: I wouldn't jump into that at all. It has been very volatile because does it because it's going up does not mean it's going to keep going up so personally am not interested in that case but I think that is what has attracted people, let that is what all this game that people had and have held onto them for a while and that brings in more people and it may have just been a double element to some of what is going on with this Bitcoin.
MAUREEN CAVANAUGH: You mentioned it earlier that there is this idea that Bitcoin transactions on the Internet can be anonymous, maybe they are not anonymous to the FBI but are they more anonymous than most of the transactions that we make?
JAMES HAMILTON: I think that is fair to say and I think that is where some of the interest comes from, part of the Bitcoin is a record of the accounts that they have for you, so the principle is fairly traceable and I see that there is competitor called Zerocoin, where they are trying to design it to be even more anonymous, and that may appeal to some people.
MAUREEN CAVANAUGH: What you think businesses gain from going through the elaborate process itself sounds like, to be up there except that point?
SEAN COLE: The process is not that elaborate, setting up a Bitcoin account is fairly simple, and service at the demonstration some of them became Bitcoin in their wallet, one of the benefits is that if there is a group of people out there who, we're all looking for customers and we want them for having people and that this brings them in and they can be estimated, it is equivalent of taking dollars for me. That is one benefit and I know another benefit is the cost of the transaction it are very expensive for merchant cards for Visa, MasterCard and American Express, they've learned to take about 3% of all of the revenue I make from credit cards, and there's virtually none that way. I would suggest that if anything it's more revenue which probably the big merchant card processors don't appreciate.
MAUREEN CAVANAUGH: Here we get to another aspect of that coin, that it is unregulated and it's free market and it is no governmental controls, I have heard that Bitcoin is really as much of an ideology as a currency, would you agree?
JAMES HAMILTON: I can do the analogy to hundred dollar bills and also gold, some people just want to hold gold and they are uncomfortable with currency because they don't know where the world is going, they like the idea of a certain independence from the government and that may be part of what you're talking about, the ideology of behind that, there is convenience to some extent, and the ideology of not being under the control of bank who charges fees for the service, people are interested for different reasons.
MAUREEN CAVANAUGH: What are you thinking is the future of Bitcoin?
JAMES HAMILTON: I am not sure, I think even if Bitcoin doesn't make it, something else like it will. I think there is a big demand for this kind of thing, and an obvious testament to that is something like $10 million worth of Bitcoin out there at this point, that is a big chunk of change. This is not as big as the number of dollars out there being spent, but there is a real place in the market for something like this, something you can use electronically this way, and it is outside of any individual government in the country.
MAUREEN CAVANAUGH: Sean, you are of the cutting edge of this and is this a good place to be?
SEAN COLE: We hope so, it is exciting to engage new customers for us and that is what we're about is trying to be cutting edge, giving people what they like in terms of services in terms of services that we can give them what they like.
MAUREEN CAVANAUGH: We will see how that big meeting goes next week.
SEAN COLE: I'm looking forward to it myself.
MAUREEN CAVANAUGH: Let me wrap it up there. I have been speaking with Sean Cole and James Hamilton, thank you both very much.