Bit by Bit (By Bitcoin) 

Boiseans take a bite of bitcoin while regulators' questions mount

Ronnie Baird: "Bitcoin is going to change the way we write code, the Internet, all of our interfaces; this is going to be like when the Internet exploded."

James Lloyd

Ronnie Baird: "Bitcoin is going to change the way we write code, the Internet, all of our interfaces; this is going to be like when the Internet exploded."

Blink and you'll miss it. Every second (or less) there's another bitcoin transaction—converted to U.S. currency, some are for a few dollars while others top $500,000. The audience at the Boise Public Library's main branch could be excused, Dec. 11 if they weren't fully paying attention to a presentation entitled, "Bitcoin 101: The Digital Currency Revolution," as a live Internet feed from blockchain.info was beaming a rapid-fire stream of real-time bitcoin transactions on the screen behind presenters Grant Anderson and Ronnie Baird.

"One of these transactions, just last week, topped $32 million," said Baird, glancing over his shoulder to look at that evening's numbers—one of which approached the $1 million mark. "Look, there's a transaction that's close to a million."

Baird isn't necessarily a bitcoin expert, but he's as close to one as Idaho has.

"Who's the smartest bitcoin guy in Boise? I'm probably No. 3 and Grant is No. 1," Baird said, pointing to Anderson. "Honestly, we don't know who might be No. 2."

Baird doesn't provide bitcoin services, per se, but he's certainly an advocate and possibly the biggest bitcoin evangelist in the region.

"It's difficult to know how many of us are here," Baird told Boise Weekly. "But I'm out there; I'm more of an extrovert."

While bitcoin may still be a mystery to many Idahoans, it's not uncommon to see Gem State buyers, sellers and even donors using the controversial currency. The Connections Church in Meridian accepts bitcoin in its online "collection plate." BYU-Idaho students can pay for off-campus housing with bitcoin and a North Idaho real estate agent's listing for 660 acres of prime real estate on Lake Coeur d'Alene asked for payment in bitcoin.

"I don't want U.S. dollars," realtor Alan Golub told the Coeur d'Alene Press in March 2014. "I want bitcoins for it."

Baird, who prefers to be called Ronnie B., is a commercial pilot by trade and many of his long-distance flights are where conversations regarding bitcoin happen.

"I fly rich people, billionaires, to and from Silicon Valley all the time," Baird told the library gathering in December. "And they tell me about the tens of millions of dollars that they're putting into bitcoin technology."

Before Baird went much further in his presentation, he needed to bring the public up to speed on what exactly bitcoin is and address some of its controversy, including its dramatic inflation through much of the latter portion of 2014.

"Think of this like the Internet in 1991," said Baird.

Bitcoin came into the world in much the same way. The currency was invented by Satoshi Nakamoto in 2008 but to this day, it's not known whether Nakamoto was a name or a pseudonym—or even a single person at all. By 2009, bitcoin's protocol, transaction-tracking software and units of currency had been published by Nakamoto, and it didn't take long before bitcoin's infancy was influenced by suspicious actors. In 2011, the Silk Road drug market website launched its online clearinghouse for illegal activities and within two years, federal agents shut down the site and seized tens of thousands of bitcoins used in online exchanges for cocaine and heroin—but the shutdown of Silk Road was only one head of the hydra. So far, American authorities have closed at least 400 sites on the deep web trafficking illicit goods using bitcoins. As recently as Dec. 14, 2014, bitcoin pioneer and advocate Charles Shrem was sentenced to two years in a federal prison after admitted to aiding and abetting unlicensed money to Silk Road.

Additionally, the Idaho Department of Finance weighed in on bitcoin in April 2014 when Finance Department Director Gavin Gee cautioned investors to "consider the risks" of virtual currency, particularly pointing to bitcoin and how one of its largest exchanges shut down—losing more than $350 million in value—after claiming to be the victim of hackers.

"Unlike traditional currency, these alternatives typically are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation," said Gee. "The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts."

What Exactly is Bitcoin?

Bitcoin has no central repository; rather, bitcoin is purchased via wire transfers, bank cards, credit cards and even cash, using select ATMs in some cities, at multiple exchanges across the globe. Simply put, bitcoin is not much more than a mobile app or computer program that moves funds in an out of a so-called bitcoin "wallet." Transactions are attached to digital signatures from the sender's and receiver's online address. Additionally, transactions can be pushed through specialized hardware by select individuals who earn bitcoin rewards for offering the service—it's called "mining." The most common transfer of bitcoin payment occurs in one of three ways: One, entering the payment amount and recipient's address online; two, scanning a QR code from a piece of bitcoin paper; or three, simply touching two smartphones together with NFC (near field communication) technology, similar to the recently developed Apple Pay.

Bitcoin prices have fluctuated wildly. A year ago bitcoin peaked at more than $1,100 per unit; but as Boise Weekly was going to press it was closer to $300, leading Bloomberg News to dub bitcoin "The World's Worst Currency in 2014."

"Most of bitcoin's supporters, meanwhile, seem to be hackers whose resources depend upon the Ponzi-scheme nature of the enterprise itself," wrote Bloomberg's Mark Gilbert.

Baird told BW that Gilbert's comments were malarkey.

"That's just not accurate. Bitcoin is not the world's worst currency," Baird said, adding that explaining the phenomenon was "very complex."

"The problem I have with talk about bitcoin is that it's very complicated to explain monetary policies to anybody who doesn't study these things," Baird said. "A lot of people just don't understand until they get into it."

Grasping the inflation of bitcoin currency is a big part of that understanding. Baird estimated that the global market is flooded with more bitcoin every day.

"You need to remember that there are 3,600 new bitcoins coming in every day. In 10 days, that's 36,000 bitcoins being dumped into the market," he said.

Economics 101 tells us that prices can't stabilize until demand follows such inflation. Thus significant amounts of bitcoin being dumped into the market continue to contribute to its volatility. Though there is no regulator, bitcoin users insist there will never be more than 21 million bitcoins created, but it is not uncommon for transactions to be parsed into smaller sub-units of bitcoin. For example, there are 1 million bits in 1 bitcoin, and they can be divided into even smaller units as users make bitcoin purchases for very small amounts, which is not uncommon when looking at the real-time blockchain.info marketplace. During the bitcoin presentation at the Boise Library, multiple transactions flashed across the screen indicating payments of just a few dollars; others still were less than $1.

Who Needs Banks?

Anderson, the co-presenter at the Boise Library discussion on bitcoin, said he spends his days as a financial analyst for St. Luke's-Elks Rehabilitation in Boise, but he's also a bitcoin evangelist.

"My story begins with a friend of mine who had been working in Uganda. She needed some particular goods, and I wanted to help, but transferring money to her could have cost considerably more than the money I wanted to send. Fees are easily 10 to 20 percent to transfer funds," said Anderson. "But I found a man in Kampala who traded in bitcoin. So I got the bitcoin funds to him in order to purchase the necessary goods for my friend."

Bitcoin's acceptance by traditional financial institutions is as volatile as the virtual currency's value. In December 2013, the People's Bank of China prohibited financial institutions from handling bitcoin. In July 2014, the European Banking Authority advised its banks not to deal in virtual currencies.

In the U.S. there are few, if any, regulations on bitcoins. In fact, a growing number of businesses are now accepting bitcoin as formal payment, including Dish Network, Expedia.com, Overstock.com and even Time magazine takes bitcoins for subscriptions.

"I think we purchased about half of our Christmas gifts this year, using bitcoin," Baird told BW. "When we need bed sheets, a new TV, I try to find websites that take bitcoin. Plus there's a new intermediary website where I can create an Amazon.com wish list, put it out there and work with someone else who uses bitcoin to get the items I want from Amazon."

Baird said for now, Idaho is at the back of the bitcoin line.

"We're as far behind as you can get," he said. "A lot of people don't even know that a race is going on, let alone that the race is happening today. Think of this like a huge sale at an outlet mall, and the first people there are buying huge televisions for $200. Well, by the time everyone else hears about it, those TV sets will be sold out."

Baird insists that the real bitcoin boom will occur when more user-friendly technology takes hold.

"Bitcoin is going to change the way we write code, the Internet, all of our interfaces; this is going to be like when the Internet exploded and the U.S. needed web developers that we just didn't have at the time," Baird said. "This is going to be very similar to that. We're slow to adapt, but when it happens, wow."

Meanwhile, consumers across the globe are clearly adapting as their transactions flash across the blockchain.info tracker each day—nearly 700 more have occurred in the approximate time it took to read this story.

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