Wednesday August 20, 2014





Bitcoin: coming soon to Kamloops?

Financial revolution coming to a location near you; software design executive lobbies for a Bitcoin ATM in Kamloops
Murray Mitchell

Kamloops business consultant Byron McDonald shows a blockchain.info wallet on his tablet while another screen shows a Bitcoin exchange pricing graph. McDonald, chief operating officer of Perigee Data Networks, jumped on the Bitcoin bandwagon last February. “I immediately understood its utility and value as an independent and near instantaneous means of irrevocably transferring value,” he said.

Since the dawn of humanity, people have found ways to develop systems of exchange for goods and labour, be it sacks of grain, livestock or shiny things like gold.

The concept of bills — a scrap of paper made valuable based on a promise — stretched credulity when first introduced.

And even that symbolic form of one's worth became somewhat passé with the digital age's online banking and electronic payments.

Now humankind is once again being asked to stretch imaginations — and faith — with the
arrival of Bitcoins.

Will the online currency resolve the problem of intrusive, expensive and oligarchic banking systems as hoped? Or is it just a passing fad?

One Kamloops software design executive is so secure in the future of the currency that he's working on getting a Bitcoin dispensing ATM into the city.

Byron McDonald, chief operating officer of the Kamloops data hosting service Perigee Data
Networks, said he jumped on the bandwagon last February.

"I immediately understood its utility and value as an independent and near instantaneous means of irrevocably transferring value," he said.

He may be onto something.

The only Bitcoin ATM in the world was installed in Vancouver in October and within one week alone had $100,000 in transactions.

It's the first of five ATMs bought by Canadian firm Bitcoiniacs from Nevada-based producer Robocoin.

The four others are set for roll out in Toronto, Montreal, Calgary or Ottawa sometime this month.

Individuals can purchase fractions of a Bitcoin, which was worth $983 as this story went to press.

First-time users create an instant account through the ATM, which uses a palm scanner for identification purposes.

They either exchange cash for Bitcoins or turn the digital units into dollars for a three-per-cent fee.

(Physical Bitcoins do exist, but they're more of a novelty and are not actually dispensed via ATM.)

To gain traction in acquiring an ATM for Kamloops, McDonald is trying to get buy-in from local business owners.

"We're setting ourselves up here to be able help local merchants to integrate Bitcoin into their payment system," he said.

It's a tough sell. Most Canadians don't know what it is, and many who do know would be at pains to explain it.

WHAT IS BITCOIN?

Simply put, Bitcoin is an Internet-based currency and exchange network designed to exist without any centralized regulatory authority.

The system uses a peer-to-peer network to transfer money anywhere in the world, instantly, at practically no cost.

"Charge backs, fraud, identity theft, all these functions and frictions within the economy disappear with Bitcoin," said McDonald.

"For local merchants receiving overseas payments, Bitcoin speeds up transactions and eliminates hundreds of thousands of dollars in fees a year."

That's because it cuts out the middleman — such as a bank or Paypal — that takes a cut with each exchange.

One recent example is a transfer of $6.5 million in Bitcoins that carried of fee of six cents.

Paypal would have a carried a $188,500 fee.

A bank transfer would've cost more than $225,000.

The online currency was introduced in 2009 by a programmer using the pseudonym Satoshi Nakamoto, but it still took several years to catch on beyond the tech geek crowd.

It's set up to release a certain number of Bitcoins in blocks over a certain period of time to a maximum of 21 million by the year 2140.

That eliminates the possibility of inflation, which devalues traditional money.

Also called a crypto-currency, individuals can acquire Bitcoins — or "mine" for them — by cracking encrypted data protecting Bitcoin blocks.

And rather like mining for gold, most people don't spend the time and money needed for sophisticated hardware and software to crack those codes.

They simply purchase those already in circulation, either from Bitcoin exchanges such as Cavirtex (Canadian Virtual Exchange) out of Calgary, or by exchanging goods and services.

As more people, companies and organizations agree that it's a useful payment system, the currency units grow in value.

Intriguing development — an estimated 20 per cent of the Bitcoins that have been released since 2009 are thought to be lost.

And as their value grows, so are amusing media reports like the one about the British man who tried frantically to find a discarded hard drive in a landfill after remembering that it had $7.5 million worth of Bitcoins on it.

He was unsuccessful.

GETTING CRUCIAL BUY-IN

So far, its newness and the need for out-of-the-box thinking are stumping some local business owners.

"Merchants are like, 'Huh?' Some people are just like, 'What? What does it mean to me exactly? Why would I want to do this?' " said McDonald.

That's the challenge.

In order for the system to work, it needs widespread usage. And that may be coming in the form of large corporate players.

He isn't ready to say who yet, but McDonald said big names with locations in Kamloops are close to getting on board.

"Major corporations are taking a very hard look at Bitcoin and what it could do for them. I think we're going to see some very big announcements in the New Year," he said.

There are still a few challenges to overcome.

Over the past nine months or so, its value has peaked and crashed from a low of $30 in April to a high of $1,242 last week.

With such volatility, how does a merchant ensure that Bitcoin payments remain stable?

They use a third party such as Bitpay to guarantee the value while fees remain extremely low, said McDonald.

While some bricks-and-mortar shops are now accepting the currency, the real interest is coming from online businesses and the non-profit sector.

A growing number of charities and donation-based organizations are
accepting Bitcoins and some have even been created solely on the system.

It's also disempowering those trying to muzzle whistleblower organizations such as WikiLeaks, which famously had its accounts frozen by Visa, Mastercard, Paypal under pressure from governments.

Bitcoin transactions now total $1.2 billion a year.

BUYER BEWARE

Not everyone is enamoured by the Bitcoin.

Investment brokers (who stand to lose in this system as one of those middlemen rendered obsolete) say it will certainly be used for criminal exchanges, which will cause it to become
defunct.

The FBI recently propped up that theory by breaking up Silk Road, an online drug black market, seizing millions of dollars in Bitcoins.

And China recently barred banks from handling it as currency.

However, the government still allows private individuals to trade them as a commodity, which proponents call a win.

The only sure thing right now for the system that's alternately called "private money for the Digital Age" and "a solution in search of a problem" is that the world is nowhere near agreement — yet.

spaillard@kamloopsnews.ca


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