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“Right now I wouldn’t call it investing, I would call it gambling,” Goss said.
Venture capitalists too are rolling the dice.
Lightspeed Venture Partners in Menlo Park, Calif., for instance, has invested in three Bitcoin or Bitcoin-related ventures since the start of the year. Managing Director Jeremy Liew describes Bitcoin’s evolution this way: the first wave was people driven by political interests who liked the decentralized nature of Bitcoin. The second wave liked Bitcoin’s anonymity for illegal activity.
It’s the third wave that interests Liew: people now being attracted by Bitcoin’s super-low transaction costs. Bitcoin is beginning to attract small businesses unhappy with more expensive payment options such as Visa and MasterCard, Liew said.
“We’re just starting to see that,” said Liew. “It’s not soccer moms, but it is starting to become people who aren’t interested for ideological reasons or legal reasons. They’re interested because it’s just cheaper. That’s pretty interesting.”
There’s a minefield of obstacles to widespread adoption. Bitcoin transactions are not reversible — once they’re done, they’re done. And it’s still experimental. Shopping options for Bitcoins have been extremely limited, although that’s showing signs of changing. A San Francisco start-up called Gyft, backed by Google Ventures, recently started accepting Bitcoin as payment for its gift cards for over 200 retailers such as Burger King, Amazon and Crate and Barrel.
What are Bitcoiners buying? Mostly low-value cards for everyday stores — $5 and $10 cards for Burger King and CVS are common, said Gyft CEO Vinny Lingham. “We’re still in the early adopter crowd,” Lingham said.
Meanwhile, regulators are taking action.
In March, the Treasury Department’s Financial Crimes Enforcement Network broadcast that it considers any entity exchanging or transmitting digital currencies to be in the money service and subject to the same money-laundering rules as other financial institutions. Such rules make it harder for customers to be anonymous or untraceable.
Then in mid May, the Department of Homeland Security cracked down on Tokyo-based Mt. Gox, one of the world’s largest Bitcoin exchanges. It issued warrants to seize funds Mt. Gox was holding at Wells Fargo & Co. and at a Des Moines-based alternative payments start-up called Dwolla. The problem: Mt. Gox’s U.S. subsidiary wasn’t licensed as a money transmitter. An investigation is ongoing. Mt. Gox recently posted that it requires all user accounts to be verified in order to deposit or withdraw fiat currencies, such as dollars.
In late May, U.S. prosecutors indicted Liberty Reserve, a company based in Costa Rica that ran one of the world’s most widely used digital currencies, with more than 1 million users around the world. They accuse Liberty and its operators of conducting an estimated 55 million anonymous and untraceable financial transactions since 2006, laundering more than $6 billion for cybercrooks dealing in everything from credit card fraud to drugs and child pornography.
Adapting to increased regulation will be one of Bitcoin’s greatest challenges as it tries to move into the physical world, said Nick Holland, senior analyst for payments at financial researcher Javelin Strategy & Research.
“We’re at this sort of inflection point for Bitcoin where it’s either going to be crushed by regulatory agencies or it will find its niche and survive,” Holland said. “Will Bitcoin make it? I don’t know.”
Holland said he’s seen dozens of online-type currencies come and go over the years — DigiCash, e-Bullion, PC-Pay, Flooz, Beenz, Zynga, Linden Dollars, e-Gold …
“I wouldn’t bet on Bitcoin just now,” said Holland. “I’m not sure it’s going to stand the test of time just because I’ve seen so many come and go.”
But, he said: “It does seem to be crossing the chasm.”
Jennifer Bjorhus • 612-673-4683