Early adoption of Bitcoin puts Philly ahead of the economic curve

The next time you're grabbing a coffee at Higher Grounds in Northern Liberties, look down and slightly to the right of the register. Taped to the wall almost discreetly, you'll see a small QR code that looks more than out of place in the café's otherwise earthy surroundings. It might not look like it, but that QR code—ordinarily relegated to the internet invention scrapheap—represents an act of technological revolution. And, I'm not sure, but using it might just make the cappuccino a little sweeter.

We're talking, of course, about Bitcoin, the proof-of-concept cryptocurrency that's making headlines as both the ultimate economic disruption and a total fool's errand. As an up-and-coming technology powerhouse, Philadelphia has familiarized itself in a grand sense with bitcoin thanks to businesses like Philadelphia Brewing Company, Street Glitter Gallery and Philadelphia Scooters signing on as early adopters. But, still, as an emergent technology, the level of use remains relatively low and the amount of confusion alarmingly high.

New technologies, however, traffic mainly in their potential, and that seems to be the attractor for Bitcoin users currently. For some of those users, that potential extends beyond Philadelphia into a worldwide stage, attaining—in the most idealistic view—a complete revolution of the financial system as we know it. But only if we all ultimately agree it has value.

"It's a unique asset class," says Edward Pham, and retired poker player and member of the Bitcoin Philadelphia group. "It can act as a currency, commodity, and stock in terms of its volatility."

That volatility, Pham says, relates back to the fact that Bitcoin is so new. However, as Bitcoin's message spreads and use continues to increase, supporters believe that that volatility will fade and a more stable value will emerge. Such are the problems of what Pham calls the "next technological advancement of money."

"Credit cards," he says, "are outdated. They were never built for the internet, they were just fit into the internet."

That fit, so far, has been an ill one. Nearly every day, headlines like Target's recent 40 million-person whoopsie, or Heartland's 2008 exposure of 130 million credit card numbers, or Sony's 2011 flub with their Playstation Network that exposed 77 million people to potential identity fraud seem to crop up. For people like Jay DiLuzio, another member of the Bitcoin Philadelphia group, the frequency of those types of occurrences is not only unfortunate—it's ridiculous.

"It's ludicrous that we use credit card information like we do," he says. "We don't need to do that—we have a public pairing system now. Bitcoin sends money digitally, but they're not getting any personal information."

Which, of course, is why they call it "cryptocurrency." Bitcoin essentially operates on what amounts to an online public ledger that acts as a sort of open source bank account for the world Bitcoin GDP, breaking it down by how much of the total pie every user has in their electronic "wallets"—only no one has any reasonable idea who any of the users are. It is, in that sense, a decentralized, centralized bank that no one controls but everyone uses.

The result is a way to buy commodities on and offline that is not only more secure in that little to no personal information is exchanged between purchases and transfers, but also one that removes the bane of every small business owner's financial existence: Processing fees.

Technically speaking, these evil little things cost small business owners up to 2 percent of the total for every card swiped—up to 2.5 percent for online stores. The result in Philly, of course, is many local shops charging minimum or adding their own fee, or just simply going by the old "cash only" creed. Online shops usually eat the costs or pass them on to you.

"There is an entire economy just in payment processes alone," DiLuzio says. And, in fact, he's right, with most guesses hovering around $48 billion paid to credit card companies in processing fees alone every year.

"We're going to see small business owners start this revolution," says Temple calculus professor Pepe Gimenéz, "For example, with Higher Grounds, the owner will not pay any fees to credit card companies. If they can pad that cost, that's huge."

In the same vein, fees charged by money sending services like Western Union go as high as 30 percent for a $100 transaction—a costly problem for, say, people who use those services regularly, like immigrants sending money back home to relatives. In that sense, supporters in the Bitcoin camp say that the digital currency could, given enough people and frequency of use, "revolutionize the world economy," in Pham's words.

It would seem, however, that the recent closing of Bitcoin exchange Mt. Gox has many worried that that revolution is a long way off. To the initiated, though, it's merely just another speed bump in the road that all emerging technologies must travel.

"It's natural selection that Mt. Gox close," says U Penn business student and founder of Bitcoin ATM groundbreakers Liberty Teller. "It was clear for some time that their talent and infrastructure couldn't handle the traffic they got. But it's not the end of Bitcoin by any means—just the end of Bitcoin's first entrepreneurs."

Having just installed Liberty Teller's first ATM (and the first in the US) in Boston, Yim has some perspective on that next wave. They're coming, but in the short term people are panic selling, and the price stands around $565 per bitcoin. However, the drops haven't been extremely drastic because Mt. Gox, which started as a market for trading Magic: The Gathering cards, was merely one exchange—one of many places to buy and sell bitcoins. So, in that sense, Mt. Gox's fall is not comparable to something like the failure of the New York Stock Exchange, but it is comparable to a trading office shutting down.

Still, though, there is the problem of newcomers to the technology getting started in the first place. Bitcoin Philadelphia's meetups are a good place for a support base, but a certain DIY element does exist. However, says DiLuzio, we are just in Bitcoin's infancy as a technology.

"The Bitcoin client is still in beta, not even 1.0," he says. "This is like the internet in 1993. It's a gigantic experiment, and you can't un-invent it. As a currency, this is just the beginning."

Which is to say, of course, that ultimately using Bitcoin will become as easy or easier than using a credit card once it becomes standardized as a method of payment. It seems complicated and dangerous now because it's new, but in many ways is no more so than any other technology we use on a daily basis. Whether Bitcoin can get to a point where it is standardized, however, is up to us. And with Philadelphia's early adoption—more than 20 local businesses accept bitcoin payments by some accounts—that likelihood, at least here, seems high.

Good thing, too. After all, it's nice not being behind the curve for once.