If the virtual currency Bitcoin is still in its infancy today, it was merely an embryo when I first heard of it. After spending last year obsessively researching how Bitcoin worked, periodically watching its price rise and fall, and deliberating over its future, I bought 20 Bitcoins for about 11 dollars each. At the time, people had asked me why I would exchange my hard-earned Canadian money for an intangible, untested currency that could hardly buy anything. The question bothered me enough that I eventually cashed out at around 13 dollars apiece, spending my pleasantly crisp $20 bills during my frosh week at McGill. Unfortunately for me, had I kept my money in Bitcoin form instead of spending it on beer, it would have been enough to pay for a full semester of university at its current market value.
What is Bitcoin?
Bitcoin has been touted by its proponents as an alternative to traditional ‘fiat’—government-declared legal tender—currency, like the Bank of Canada-backed Canadian dollar that we use in our everyday lives. Unlike traditional legal tender, Bitcoin is supported by a cryptographic peer-to-peer network of computers that verify transactions by separately confirming each one in a list of exchanges between any two parties.
Bitcoin uses ‘public key encryption’ in order to guarantee security. These keys come in mathematically-related pairs—one public and one private—and are made up of unique strings of letters and numbers. Each coin is associated with its owner’s public key. When sending the coin to another party, the transaction is marked by the original owner’s private key as well as the new owner’s public key. This securely and anonymously associates both parties with the transaction and prevents others from changing the transaction once it has been made. Confirmed transactions are added to an encrypted ‘block,’ and when a block is complete, the series of transactions it contains is added to the ‘blockchain’—a public ledger of all transactions. In this way, blocks are analogous to pages in a ledger.
New blocks are verified by miners—computational hardware—that track Bitcoin transactions. The miners seek to generate a string of characters called a ‘hash value’ out of the transaction information within a block that meets a target determined by the network. The lower the target, the higher the difficulty of generating a hash value that both meets the target and reflects this information. Once a satisfactory value is found, the owner (or owners) of the miners then receives a Bitcoin bounty, currently 25 Bitcoins per block. The whole process gets increasingly difficult as more computers are added to the network, which increases the security of the blockchain and decreases the rate of Bitcoins generated. The amount of virtual coins will eventually cap out at 21 million.
This brings us back to the question of value: if money can be generated by a computer, what makes it hold value? The answer is simply that the people who own it collectively believe it does—which in fact echoes the green paper of conventional currency. Despite the fact that fewer goods and services are available for their Bitcoins, advocates of the system believe in its long-term viability due to its anonymity, security, and negligible fees for both local and international transactions. This is why, at the time of publication, a single Bitcoin in a pool of nearly 12 million is worth $195 CDN.
The Bitcoin Embassy
While some Bitcoin owners are looking to make a profit by buying in at the right time, others take an almost evangelical stance on it, believing it to be a currency of the future in which widespread adoption could have revolutionary implications. The largest real world embodiment of this dream in Montreal—and perhaps on earth—is the Bitcoin Embassy (Ambassade Bitcoin), a three-floor building at 3485 Blvd. St. Laurent that is still in development. It will consist of a retail space and welcome area, a lounge that serves as a conference and meeting space, and administrative offices.
The biggest realization of the Embassy’s stated goal of public outreach and education about Bitcoin has been its use as a space for monthly meet-ups and free events that gather investors, entrepreneurs, Bitcoin beginners, and other interested parties. A meet-up held earlier this month attracted various Bitcoin enthusiasts, mostly from Montreal and Toronto. Several of those in attendance own companies that enable Bitcoins to be spent, whether through online payment processors similar to PayPal, like Alexandre Bourget’s
“BitCredit” system, Eric Spano’s online bill payment system “Bylls,” or Andrew D’Allesandro’s gift card platform “Bitcarder.” Companies like these attempt
to solve one of the current problems with Bitcoin: the fact that a majority of businesses don’t accept it.
“Ideally, the best thing would be for stores to adopt Bitcoin, but I personally don’t see that happening any time soon, just because for it to be used in stores it would have to be bigger than PayPal,” said D’Allesandro, a fourth-year Concordia civil engineering student. “In between then, there needs to be some sort of a bridge, and I find the best way for now would be to use Bitcoins to buy gift cards.”
On the first floor of the embassy, “the idea is to attract pedestrians that walk by, people [who] are just interested in what a Bitcoin is,” said Bitcoin Embassy Founder and Chairman Jean-Marc Jacobson. “A lot of people have a lot of cool items in the Bitcoin world, and they have to have a place to sell it, so we will present [them] in the shop. We will have some information about the legals, the history of Bitcoin, [and] paraphernalia [….] We are also looking […] to rally other merchants […] to start accepting Bitcoins.”
Meanwhile, the open-concept, 3,800 square feet second floor, plays host to the aforementioned monthly Bitcoin meet-ups as well as workshops and lectures. “Usually we try to attract personalities in the Bitcoin industry,” Jacobson said. “They explain their specialty, and anybody can participate and ask questions.”
Finally, the third floor offices, besides containing offices for Bitcoin Embassy employees, will support “those that have good ideas [for businesses] or projects. If we believe in them, we will help them get started, provide them with an office, provide them with all the necessary financing to start working, […] and try to make sure the businesses there are more than the sum of [their] parts.”
Who wants coins?
While the Bitcoin Embassy promotes Bitcoin by accelerating projects like D’Allesandro’s, the organization also hopes that their presence encourages local businesses to accept Bitcoin.
“We believe that the Embassy will really convince most businesses around to accept Bitcoin, and therefore will become one of the prime tourist locations for Bitcoiners,” Jacobson said.
Perhaps the largest—and most notorious—business to accept Bitcoin was Silk Road, an online marketplace for buying and selling narcotics—among other products—anonymously. Described as “a sort of eBay for drugs” by The Economist, the site was shut down by the FBI earlier this month, but not before conducting “somewhere between $30 million and $45 million” in annual transaction volume, according to an estimate by Carnegie Mellon computer security professor Nicolas Christin in an interview with The Daily Dot. Immediately after Silk Road was closed—and founder Ross Ulbricht arrested—the price of a Bitcoin lost a fifth of its value, only to rise to a six-month high two weeks later.
“I think what drove the market back up is a lot of people on the fence,” said Bitcoin Embassy meet-up attendee Alexander Izak, a Bitcoin investor who works at a bank in Montreal specializing in mutual funds and currency-based work. “They didn’t like the fact that [Bitcoin] was attached to Silk Road, which is such a big single entity. I think that the idea is with Bitcoin, the more decentralized the markets, the more small businesses [there are, the] more valuable it is.” As if to demonstrate the arbitrariness of the value currency, Izak brought an impressive collection of paper money from around the world, much of which would no longer be accepted today.
Around the same time Silk Road was shut down, another more legitimate player introduced itself to the Bitcoin market. Chinese web services company Baidu, often described as ‘China’s Google,’ now accepts Bitcoin through its security division, Jiasule. In an announcement released on Oct. 14, the company stated that “Jiasule, as the innovator of the internet, has become the first cloud services vendor to support Bitcoin, giving us [more] payment methods and experience.”
At the moment, Bitcoin seems to attract a motley crew of investors looking to get rich, idealists who think the currency will revolutionize commerce, and
entrepreneurs who want to take advantage of a growing business opportunity. Only time will tell if Bitcoin will ever become ‘grandma-friendly,’ the goal of Jordan Kelley, CEO of RoboCoin, a manufacturer of ‘Bitcoin ATMs.’ As it happens, one RoboCoin ATM is scheduled to be installed at the Bitcoin Embassy soon, and the first machine in Canada goes live in Vancouver today.
Without a central organization to promote its use, Bitcoin relies on fans who have caught the ‘Bitcoin bug’ to spread the word about the new currency. Judging from the passion of those involved, a day where McGill University e-bills can be paid with e-money may not be far off.