Spokane bartender Ash Hayden conducted a simple $24 transaction this week at the Volstead Act, the bar on Post Street where he works.
That payment, made by customer Matt Rush, was a big deal to Hayden, who’s spent the past year learning about a digital currency called Bitcoin.
Rush’s payment for three drinks was the first Bitcoin transaction at the Volstead Act, one of the first Spokane-area businesses to dive into that alternative to using debit or credit cards.
In North Idaho, at least a half-dozen companies are doing the same, testing whether customers are ready for the Bitcoin option, a virtual currency system that its advocates say could change how people conduct business.
This past week, Utah-based retailer Overstock.com became the first large online retailer to accept Bitcoin. Within the first 24 hours, the company processed 780 Bitcoin orders, its CEO tweeted Friday.
Bitcoin believers say many other companies, big and small, will ultimately do the same. That’s because Bitcoin allows purchases that are more secure than other electronic payments and can be done with no ability for others to trace the name or other information of the buyer.
And merchants get the advantage of quick online payments that essentially eliminate the 3 percent service fee typically levied on plastic card payments.
There are plenty of skeptics, however, who see Bitcoin as an overhyped innovation with serious limitations. Some point to the fact that Bitcoin is not managed by any one bank or government. Since it is decentralized and not regulated or controlled, the relative value of Bitcoin is volatile, said Sandeep Krishnamurthy, dean of the University of Washington’s Bothell campus School of Business.
He pointed to the Bitcoin exchange rate to the U.S. dollar to demonstrate that volatility.
In January 2013 each Bitcoin, according to a Web-based exchange, was roughly equal to $50. In the fall, due to factors Krishnamurthy said included wild speculation, the exchange rate jumped as high as $1,200.
Many business analysts at that point declared Bitcoin was a bubble waiting to burst.
On Friday, one popular Bitcoin exchange listed the exchange rate as $862 per Bitcoin.
Krishnamurthy acknowledged Bitcoin can make sense as a universal currency used on the Internet. The system of payments ensures that merchants quickly learn if a payment is approved. And its computer encryption is highly secure, preventing the types of breaches that afflict companies like Target, which recently reported a hack that exposed data for up to 70 million of its customers.
“It’s a kind of a cool idea, for young people, especially for those who are anti-establishment,” Krishnamurthy added. Whether Bitcoin develops into a widely used currency, he said it’s clearly appealing to early adopters “who want to try something new and be ahead of the curve.”
He warned, however, that if Bitcoin grows more popular, governments could start imposing regulations that change what its supporters like most about it – the simplicity of being able to make payments without having to deal with bank accounts or credit card companies.
Here’s how it works: A user establishes a Bitcoin account by going to an online exchange and paying for the virtual currency. Among the most popular exchanges is Coinbase, the exchange service that Overstock uses for its Bitcoin transactions.
Typically, users also download a smartphone digital wallet and add their Bitcoin account to it.
In a Bitcoin transaction at the Volstead Act, a customer is presented with a computer or tablet screen that has translated the dollar amount of the purchase into Bitcoin value. A QR code – a two-dimensional swirl of dark lines that is the latest version of a barcode – appears on that screen.
The customer uses the camera on his or her smartphone to read the QR code, then the digital wallet app lets the customer approve the purchase. That initiates the transfer of Bitcoin value from the customer’s account to the merchant’s account.
Because Hayden and Volstead Act owner Matt Goodwin want customers to test Bitcoin, they’re offering discounts. A $9 cocktail costs only $8 for Bitcoin payers, Hayden said.
Added Hayden: “I see this as an experiment. I don’t know how popular this will ever become. I find it very interesting. But at the end of the day, no one really knows where this will lead.”