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Interest in BitCoin, fledgling electronic currency, grows

Jeremy Kirk | Sept. 12, 2012
Anthony Gallippi, CEO of BitPay, has started paying his gardener -- in BitCoins.

Anthony Gallippi, CEO of BitPay, has started paying his gardener -- in BitCoins.

His gardener carries a card with a QR code with the needed information for Gallippi to transfer BitCoins to his account once he's finished tending the lawn. The gardener has chosen to get 90 percent of the money in cash, delivered by bank transfer by BitPay the next day, and keep 10 percent in BitCoins.

"Every time I pay him, he gets BitCoins in his wallet right away, and next day he gets a direct deposit in his bank account," Gallippi said.

BitPay, a Florida-based company, is seeing rising interest in BitCoin, the fledgling digital currency that is a small, yet interesting wild card challenger to traditional payment systems.

BitPay is one of a handful of companies trying to make it easier for merchants to accept BitCoins and people to use them. BitCoins are essentially encrypted numbers that have fluctuating value according to open-market trading. It has been referred to as a crypto-currency for the complex system under which BitCoins are generated and traded.

Gallippi, who runs BitPay with Stephen Pair, said the company recently signed up merchant number 1,000, a significant mark for a currency that has only been in existence since 2009.

BitPay hopes to compete against payment services from big credit card networks such as Visa and MasterCard and others such as PayPal by offering lower transaction fees but keeping merchants' confidence about BitCoin's security.

Last week, hackers stole around US$250,000 worth of BitCoins from BitFloor, a New York-based company that allowed account holders to buy and sell BitCoins, as well as exchange the currency for U.S. dollars and transfer the money using the ACH (Automated Clearing House) system.

BitFloor's founder, Roman Shtylman, said hackers found the private keys on an unencrypted disk for the company's BitCoins. The keys are needed to transfer the currency. He blamed himself for the error.

BitPay, which used BitFloor to exchange BitCoins for U.S. dollars, lost 750 BitCoins, or around $8,000 to $9,000, Gallippi said. But BitPay had enough cash on hand to ensure that merchants exchanging BitCoins with BitPay were paid. BitPay also uses several other BitCoin exchanges to swap the coins for cash.

If a merchant wants to accept BitCoins, BitPay provides an API (application programming interface) for e-commerce sites that processes the transaction. Those merchants can be paid in BitCoin, but Gallippi said most are opting to receive cash, which BitPay delivers by wire transfer the next day. That way also allows merchants to avoid sticky accounting questions around BitCoin.

The advantage for merchants is that BitCoins are like cash payments: they can't be reversed by a card processor, and merchants don't have to handle the sensitive personal details involved in making a credit card transaction online, reducing the chance of identity theft for consumers.

 

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