Pittsburgh's bitcoin faithful few, but fervent

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Do you take bitcoin?

The likely answer for now is no. Yet some believe that the bitcoin, a form of digital currency that has gained wider attention in recent weeks with the announcement of a few prominent investors and a period of volatile trading, could become a more widely accepted form of currency.

In Pittsburgh, the bitcoin faithful are few, but they are fervent in their support of bitcoin. This month, about 15 local bitcoin enthusiasts met at a restaurant in Station Square to talk about the currency's future. Nicholas Mross, 30, a freelance filmmaker and videographer who lives in Sewickley Heights, was there to film the meeting for his documentary about the currency. He's calling it "The Rise and Rise of Bitcoin."

"I'm very much a believer in bitcoin," he said. "I believe that it's going to stick around."

So what, exactly, is bitcoin?

"Bitcoin doesn't really have a good elevator pitch," said Daniel Mross, 35, of Observatory Hill, a co-owner of a software company and the person who got his brother, Nicholas, interested in making the film.

For the general public, the best short explanation he gives is this: "It allows you to replace the need for banks. It allows you to be your own bank."

Bitcoin, according to its website, is a digital, encrypted currency that allows instant peer-to-peer transactions all over the world without relying on a central bank or a government. A person or persons using the pseudonym Satoshi Nakamoto developed the concept of bitcoin in 2009, the website says.

A person gets started using bitcoin by installing a virtual "wallet," similar to an app, on his phone. To get bitcoins in his wallet, he can purchase them through websites such as Coinbase.com using U.S. dollars in his bank account. (The websites usually charge a small fee for the purchase.) Then, he can trade them electronically with other individuals or businesses that have wallets for bitcoins.

On Craigslist, currently, a seller in Squirrel Hill is offering a GPS device for $100, but will also accept bitcoin. To complete that transaction, the buyer would send an equivelant bitcoin value (a bitcoin can be broken into smaller amounts) from his wallet to the seller's wallet in order to purchase the GPS.

If, for example, one bitcoin equals $50, then, at the end of the transaction, the buyer would see there were two fewer bitcoins in his wallet, and the seller would see two more bitcoins in her virtual wallet.

The value of a bitcoin, since it fluctuates with the markets, has been volatile. Bitcoin's own website warns that the price of a bitcoin can increase or decrease dramatically, so people should not invest their savings in it.

Bitcoins have also attracted the attention of the U.S. government. The Wall Street Journal reported in March that the Treasury Department said its standard federal banking rules applied to firms that issue or exchange virtual currencies.

Bitcoin, four years after its conception, remains a currency system that invites a great deal of skepticism.

"It is hard to imagine it will take off," said Bryan Routledge, an associate professor of finance at the Carnegie Mellon Tepper School of Business.

Money, traditionally, is a unit of account, a medium of exchange and a storer of value, he said, and he doesn't believe bitcoin fully satisfies those definitions of currency. He compared a bitcoin to the dollar bill, which is fiat money, meaning that the U.S. government has authorized it as legal tender.

The dollar "works as a medium of exchange because people believe it to have a medium of exchange," Mr. Routledge said. But bitcoin doesn't have anything to support it as legal tender, he said.

Mr. Routledge is not investing any of his money in bitcoin. But some prominent investors are.

Cameron and Tyler Winklevoss, the Harvard-educated, Olympic rower twins who sued Facebook founder Mark Zuckerberg after claiming he stole their idea, are now venture capitalists who have accumulated nearly $11 million worth of bitcoin, the New York Times reported Thursday.

In Pittsburgh, the early bitcoin adopters tend to be people with a bit of a libertarian streak who are fascinated with technology, Nicholas Mross said.

"A lot of the early adopters were people that got into it because they found it fascinating as a new technology and an idea, not as a financial investment," he said. His brother, he said, is one such example.

Mark Berger, 43, of Shadyside, who does marketing for technology firms, follows technology news and heard about bitcoins a few years ago. He stayed on the sidelines, watching as the currency slowly grew. Three weeks ago, he purchased his first bitcoin.

"When it stayed over $50, that's when I started to take it seriously as a currency, and that's when I bought my first bitcoin, just to try it out," he said.

Now, he has started a blog about bitcoins in Pittsburgh -- www.pittsburghbitcoins.com.

Although he acknowledged that bitcoin is still volatile, he said he wasn't alarmed by bitcoin's recent market fluctuations. The value of one bitcoin has ranged from more than $260 to less than $50 in the past month.

"The market is trying to figure out what really was the value," Mr. Berger said.

Colin Dean, 28, a software engineer who lives in Wilkinsburg, has invested about $500 in bitcoins. Mostly, though, he accumulates bitcoin through mining. In bitcoin lingo, this means he is rewarded with bitcoins for offering his computer hardware to aid in the confirmation of bitcoin transactions.

"I'm very bullish on it," Mr. Dean said of bitcoin. "I think it has a distinct future as, at a minimum, a simple means of international and long-distance value exchange."

Andy Tepper, president of eGenesis, an online gaming company based in Ross, is even more bullish.

"It's inevitable that bitcoin will become the world's currency," Mr. Tepper said.

He listed his reasons for believing in bitcoins. They are counterfeit-proof, he said. There are about 11 million bitcoins now, with a maximum limit of 21 million, a protection against inflation. It's a currency governed by math, not governments. The transaction fees are either very low or non-existent. It's open-source software, and it can be anonymous to send and to receive bitcoins, if certain steps are taken. It's also easy to send large amounts of value across borders quickly. And because there is no middleman, it reduces fees, such as those businesses have to pay to credit card companies.

He said he is seeing a growing number of places accept bitcoin. Mr. Tepper's own company designed an online gambling game, called Dragon's Tale, run by a company in Costa Rica, that uses bitcoins as chips. For now, though, bitcoin has what Mr. Dean described as a chicken versus the egg problem: "I have this thing I want to use as a currency, but nobody wants to accept it because they can't use it themselves," he said.

That -- as well as the struggle of explaining to people what bitcoin is and how to use it -- are two of the major challenges for bitcoin supporters, he said.

Bitcoin is "growing organically," Mr. Dean said, and there's no rush to hasten its widespread use.

"When will I be able to expect my employer to pay me in bitcoins and then I can go buy a beer in bitcoin?" Mr. Dean said. "I think we're still a couple of years off."

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Kaitlynn Riely: kriely@post-gazette.com or 412-263-1707. This story originally appeared in The Pittsburgh Press. To log in or subscribe, go to: http://press.post-gazette.com/ First Published April 17, 2013 8:45 PM


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