Bitcoin gaining traction locally
How you can invest in virtual money, backing technology
There’s a popular misconception that digital money is for Silicon Valley elites and Wall Street investors with deep pockets, but the world’s most valuable cryptocurrency and the technology behind it are gaining traction in the Lehigh Valley.
Bitcoin, whose price has peaked and plunged over the last week or so, can be bought and sold at ATMs throughout the region. With a scan of your smartphone, you can turn traditional money into virtual currency.
The latest machines, including kiosks from a company in Whitehall Township, are considered the wave of the future — not only a means for users to deposit cash and convert it to bitcoins, but also for the sale of bitcoins and a quick cash withdrawal.
Getting to this point hasn’t been easy, even if the ATMs and quick accessibility have helped push Bitcoin and other cryptocurrencies further into the mainstream. The machines are a draw for enthusiasts, a curiosity for the uninitiated, and downright peculiar for those who have no idea what Bitcoin is or does.
‘Money 2.0’
Bitcoin is just one of more than 5,000 cryptocurrencies in circulation.
Created in 2008 by a person or group using the alias Satoshi Nakamoto, Bitcoin is a piece of computer code transferred from person to person. It isn’t tied to a bank or government, allowing users to buy and spend it anonymously, and has been championed as an alternative financial system by names like Tesla CEO Elon Musk.
Because Bitcoin is finite — only 21 million tokens will ever be available — it can’t just be printed or created and thus guards against inflation.
Every transaction is recorded in a blockchain — a public ledger that everyone has access to — and though formerly used on the darkest corners of the internet for drug dealing and other nefarious practices, Bitcoin has recently become popular with both speculative investors and big financial technology players like Square and PayPal.
Though the token has gained wider acceptance, the price of Bitcoin has been described as volatile since it can fluctuate wildly.
As of Sunday afternoon, the price of Bitcoin was at $43,770.89, down from a peak of $54,911.13 on Feb. 22, according to Coindesk, a website that monitors the price.
Many are using it as a vehicle
for saving or investing, lending it legitimacy and helping to erase perceived risk.
Over its 12 years of existence, Bitcoin’s biggest hurdles — ones it’s still struggling to overcome — are questions of volatility, susceptibility to fraud and exactly what the future holds for the innovative payment network. But it has some big supporters.
As an adopter of cryptocurrency in its infancy, Emmaus High School and Lehigh University graduate Sapan Shah refers to Bitcoin as “Money 2.0, or an upgraded version of money.”
Shah first made headlines in 2013 when he accepted Bitcoin as a form of payment at his Subway franchise in South Whitehall Township. At the time, he was one of the first brick-and-mortar merchants in the country to use the virtual currency in lieu of dollars and cents. Now, there are more than 60 in Pennsylvania and more than 2,300 across the country.
“It’s the next version of transacting. That’s the best and easiest way I can explain it,” Shah said, noting the awareness of Bitcoin and the number of people now using it. “It definitely different than, say, 2013, when I was just accepting it at my store. Now you go anywhere and it’s almost a household name. Everyone just knows about it. They don’t really understand sometimes what it is, but they know that it’s there.”
Shah believes cryptocurrency is “a good hedge to own a small amount in” and recommends smaller weekly purchases rather than all-out buying in order to ride out the volatility as the price of Bitcoin ebbs and flows.
While he’s not one to give financial advice, it’s a strategy Eric Grill, CEO of chainbytes. com, can get behind.
‘A new financial system’
Grill operates more than a dozen two-way Bitcoin ATMs across the region, but unlike a traditional bank ATM, more people are putting cash into Grill’s machines than taking it out.
“They want to get Bitcoin and hold on to it,” Grill said. “And that’s the whole thing — hold on for dear life and don’t think about it. If it goes down and you sell, you’re going to regret selling it.”
Grill said one popular strategy is to buy Bitcoin and sit on it, likening it to an investment or savings account. A number of younger people putting their money into it never invested before, so they’re learning about the difference between Bitcoin and traditional stocks.
“The asset itself is very immature. And so we don’t have all these derivatives, like, you know, a stock has options, it has bonds, there’s more to accompany than just the stock price, right?” Grill said. “There’s all these other things, and Bitcoin doesn’t have that.”
Although it’s hard to say how popular the machines are, they generally get 20-50 users per day, he said.
“We have literally everybody,” Grill said. “So we get a lot of new users — people that are not comfortable going online and doing it online.”
And the process takes just minutes to complete.
Cash goes into the machine and Bitcoin is transferred into either a digital wallet created through a cellphone app, or a receipt is printed with a public and private key, and the latter grants a user access to their wallet.
There is a transaction fee, averaging 10%-20% in the region, but fees differ based on location, Grill said. In New York City, for example, Bitcoin ATM fees range from 30%-40%.
And the machines are regulated by Fincen, part of the U.S. Treasury Department, Grill said.
So officials speaking out against Bitcoin — like Treasury Secretary Janet Yellen, who called it “an extremely inefficient way of conducting transactions” — are dealing with something called “FUD,” Grill said: fear, uncertainty and doubt.
“Saying that it’s inefficient, wasted resources, compared to the dollar — it’s certainly not,” he said. “There’s the old financial system, [and] we’re building a new financial system. So this new financial system is based on that proof of work, and that proof of work cost resources and so that’s the design of it and that’s what keeps it safe and that’s why it can’t be hacked.”
What makes Bitcoin strong and viable into the future is the proof of work in the blockchain that backs it up, Grill said.
“You have a ledger that’s distributed and everybody can agree on it — it’s the most powerful aspect of it,” Grill said.
‘A huge societal good’
The debate over investing in Bitcoin and cryptocurrency will continue, and so will the growing demand for those immersed in data management, data science and blockchain — the technology that enables cryptocurrency. It’s prompted Lehigh University and many other four-year institutions to add courses on the technology.
Among Lehigh educators, Hank Korth, a professor of computer science and engineering, is at the helm of addressing the evolution underway in the financial services sector. He’ll often tap what he calls a “nice ecosystem of alumni,” including Shah, to speak to students. Kevin Worth, CEO of CoinDesk, is among those alums, and Korth says Lehigh enjoys “great collaboration with some companies in the blockchain development space.”
But Korth says it’s data and blockchain, not Bitcoin or cryptocurrency, that is the real hot commodity in the financial world.
“Fundamentally, a blockchain (where Bitcoin’s transactions are stored) is a database. A database is just a collection of information,” Korth said. “Now, we’re used to databases being things like bank databases, where you have the account ID, customer name, balance and so forth. And so, naively, you think of a blockchain as some chain of blocks of transactions, but it’s just information. What makes blockchains different from traditional databases is certain special properties that blockchains have that are derived from cryptography.”
In Bitcoin, Korth said, private keys produce a public key via a digital signature algorithm. At its most basic, a cryptocurrency wallet is a collection of these keys.
“What Bitcoin did was a phenomenal engineering task of taking a whole bunch of known things, adding a little bit and assembling it into a really well functioning machine,” Korth said, while stressing the “irrefutable validity of blockchain data is one of the really key properties that needs to be understood” in Bitcoin or other digital transactions.
As deep learning expands and the next generation stands at the crossroads of business and financial technology, Korth believes there’s a “huge societal good” that can come of it, if done right.
“With all these courses, we’re training packs of students who have the technical skills and the policy skills, hopefully to go out wherever they go, and start making a difference,” he said. “We have students getting job offers from leading blockchain companies, we have people going to the public accounting firms and working in their blockchain practice. We are pushing people out there who hopefully are going to contribute to doing good things, and it’s a lot of fun.”