With the value of the digital money known as bitcoin going crazy in recent months – it could easily increase by $10 in the time it takes you to read this story – bitcoin-friendly businesses have been faced with a dilemma: How do you set prices using a currency that changes wildly?
The answer: You don’t.
“I don’t even try. I would have to spend all my time updating them,” said Kirk McNeil, owner of Concord bar Area 23, which had the area’s first bitcoin ATM and is probably the local business most associated with the crypto-currency. (I wrote about them in January.)
As is the practice at most bitcoin-accepting businesses, Area 23 prices its beer and food in dollars. If you want to pay in bitcoin, software known as a bitcoin wallet will translate this price into crypto-currency and transfer that amount of bitcoin to Area 23’s account.
Bitcoin is a digital alternative to currency that operates free of any government oversight, with its value dependent on millions of transactions that are recoded on a special type of ledger known as the blockchain.
After floating in geeky backwaters for years, bitcoin has taken off with a meteoric rise in value that, depending on your point of view, reflects either global delusion that will end in a financial crash like the tulip mania of 17th century Netherlands, or reflects the arrival of an entirely new way of creating and distributing wealth.
As of this writing, one bitcoin is worth more than $16,000, meaning a $5 beer costs .00029 bitcoin, or 2.9 ten-thousandths of one bitcoin. It’s hard to comprehend a number that small, so think of it this way: In order to hold .00029 dollars you’d have to chop one penny into 100 equivalent pieces and then keep just three of them, minus a teeny-tiny bit of one of those pieces.
However, this same $5 beer would have cost twice as many bitcoins just two weeks ago, when a bitcoin was worth about $8,000, and cost four times as many bitcoin two months ago, when one bitcoin was worth $4,000. If current trends persist, that beer will cost only half as many bitcoins before Christmas arrives.
That pattern explains why bitcoin isn’t being used as a replacement for money in the daily economy, the role that advocates played up when bitcoin arrived on the scene. You’d be crazy to accept an object with unchanging value, such as a beer, in exchange for a chunk of bitcoin that might double in value in a few days.
Few people are this crazy, it seems. “I’ve maybe had two bitcoin transactions in the past month,” said McNeil.
“There’s a lot of talk about it,” he added. Just not much buying with it.
Since January the bar has hosted a bitcoin vending machine, at which you can use dollars to purchase bitcoin, although not the other way around. News about bitcoin’s soaring value means this machine has been going gangbusters as people try to jump on the bitcoin bandwagon, McNeil said.
The bitcoin machine is owned by a separate firm, and the bar gets a cut of the proceeds.
There is one unexpected drawback to the bitcoin boom. Because of the way the system was set up by its still-unidentified founder in 2009, new bitcoins are created via mathematical computations that grow increasingly difficult over time, a process that carries the name of “mining.” By some estimates, the amount of computer power being devoted to bitcoin mining around the world has grown so huge that it is consuming more power than all of Ireland, so that an entity which exists only in the digital world is harming the environment in the physical world.
As for McNeil, he says he has avoided the bitcoin rush because “I’m no good at speculating.”
After all, the value of bitcoin could easily crash any minute. It has fallen more than $1,000 in a single day several times during the recent run-up, and while it has always recouped the loss quickly there is no guarantee this will continue.
No matter what happens, however, McNeil is happy because interest in bitcoin tends to translate into interest in Area 23.
“There’s a benefit being linked in their minds to bitcoin,” McNeil said. “If it settles down a little bit, and we’ve got a bunch of people who are bitcoin millionaire, or maybe thousand-aires, they may want to spend some of that money money here.”
(David Brooks can be reached at 369-3313 or d