Check out the article the Virginia Pilot did about Bitcoin in Hampton Roads.
Bitcoin in Hampton Roads: Currency is finding footing
Trevor Scribner, clad in T-shirt and shorts, looked like any other customer when he went to Doumar’s Cones and Barbecue last week and shook hands with Thad Doumar at the counter.
He had come to persuade the general manager of one of Hampton Roads’ oldest restaurants – whose founder is said to have invented the ice cream cone – to embrace a newer invention: bitcoin. A decentralized, Internet-based monetary system, bitcoin uses a digital currency and has begun to build a network of users across the globe, especially overseas.
Doumar wore an orange cap, a crisp white shirt and a tie with letters vertically spelling the Norfolk diner’s name and ending in a large ice cream cone. He told Scribner he knew a little about bitcoin from news reports.
Recently that news hasn’t been good. Coverage has focused on bitcoin fraud, bitcoin-funded criminal activity, the drop in the currency’s value and the crash of Mt. Gox, the Tokyo-based bitcoin exchange that lost its customers’ holdings earlier this year.
None of that has dampened Scribner’s faith. “I’m of the mindset that I think it’s going to change everything,” he told Doumar.
In Hampton Roads, a number of bitcoin believers like Scribner are trying to spread the word and expand the community of followers. They want more businesses to accept bitcoin, so users will have more places to spend their bitcoins, and the currency will ensconce itself in customary consumer culture.
These bitcoin disciples aren’t necessarily technology nerds or aggressive investors. Some are in the military and believe that bitcoin is a safer, off-the-grid place to park their money. Others are small-business operators or buttoned-up corporate types keeping an eye on its progress.
Scribner’s family business, which sells portable oxygen equipment for travelers, now takes bitcoin, and he recently started reaching out to local restaurants to urge them to accept it.
Scribner explained the nuances to Doumar: It’s free to access the network. All a retailer or restaurant needs is an Internet-based checkout system to process bitcoin payments and convert them to dollars.
He helped Doumar, whose great-great-uncle founded the business, establish an online bitcoin account in his cramped back office. Then, Scribner walked to the front counter, where Doumar stirred up a fresh limeade for him. The $2.15 drink cost him 0.00511914 bitcoin.
Doumar returned to the office and checked his account, which showed the new transaction. “I love it!” he exclaimed.
And with that, a 109-year-old business became the first Virginia restaurant, according to one bitcoin resource, to accept bitcoin.
Scribner left the drive-in with plans to bring a “We Accept Bitcoin” sticker for the front window and get the business started with an online system to process bitcoin payments.
“I’m so excited!” he shouted as he reached his pickup.
Describing Tom Flake as a bitcoin miner is a little like calling Steve Jobs a phone maker. Like Jobs, the father of the iPad and iPhone, Flake is a visionary.
He co-founded BCause LLC, a Virginia Beach company that mines bitcoin, but that’s just the tip of the bitcoin ’berg for Flake.
Bitcoin mining is an encryption process that makes each bitcoin transaction verifiable mathematically. The encryption is fundamental to bitcoin, making it more secure than credit cards or cash, Flake explained.
No one can “pull” bitcoin from the system the way a merchant can take a payment with the swipe of a plastic card or a thief can steal cash. The holder of bitcoin must “push” the money where he wants to spend it.
BCause operates out of the data center of Utility Scale Computing, Flake’s other company, which provides computer processing for outside clients.
Flake opens a metal cabinet that holds eight BCause computers, among 13 total in the room. Blasted with air conditioning and a bank of fans, the computers can process an impossible-to-comprehend amount of data: 1.2 million petaFLOPs. A petaFLOP is a thousand trillion floating-point operations per second.
“In the aggregate, they comprise one of the most powerful supercomputers in the state of Virginia,” Flake said. “This is a number that’s outside most people’s realm of experience.”
Another 20 computers are on order, because bitcoin mining depends on this processing power to churn through numbers day and night. The miners that invest in all this machinery contribute to the value of bitcoin. The more bitcoins are mined, the harder they are to extract. The creators of the bitcoin system capped the amount that could enter circulation at 21 million bitcoins.
Flake and partners are looking to expand into bitcoin investment banking and options trading, similar to the stock exchanges of Wall Street.
Options would allow an investor to gamble on the future value of bitcoin. An investment bank could offer financing, say, for a developer that wants to fund construction of a new building with bitcoin.
“All the services that exist around any currency will have to exist around bitcoin,” he said. “We believe that’s inevitable.”
Despite the volatility of the price of bitcoin – after its launch in January 2009, it rose above $1,000 late last year before settling around $450 now – Flake considers it no less stable than the dollars we know and trust. Inflation causes the value of currency to deteriorate over time, which is why a loaf of bread costs more today than it did 10 years ago.
“People have this illusion that their paycheck is always the same,” he said. “The reality is you can’t eat money. So the paycheck is only good for the things that it’ll buy, and the things that it’ll buy change in price on a daily basis.”
Flake has a business and math degree from Old Dominion University and a master’s in business administration from the College of William & Mary. In addition to his other companies, he runs the Peninsula Technology Incubator in Hampton, which launched BCause.
Flake, 48, doesn’t just believe in bitcoin as currency. He considers it an antidote to the “brain drain” plaguing Hampton Roads, which loses young adults who leave the area for high-tech careers. Bitcoin-related development could turn the region into the Silicon Valley of cybercurrency, he said.
“If we want to be a center of innovation,” Flake said during a lunch with fellow believers in March, “we need to innovate, not follow.”
Some people are scared of bitcoin. They aren’t sure what it’s about and can’t hold it in their hands. Existing only in cyberspace, it seems underground, sinister.
They’ve heard about bitcoin theft and illicit drug activity on one of the early bitcoin trading sites, Silk Road. They’ve heard about criminals using bitcoin to launder money. Or they’ve heard about the Ponzi schemes built on bitcoin investment.
Cullen Speckhart, an attorney for the Virginia Beach firm Wolcott Rivers Gates, coined a word to represent such concerns: Bitcuprolaminophobia.
It’s riff on cuprolaminophobia, the fear of coins.
Speckhart, 33, is her firm’s expert on bitcoin. And she’s helping navigate the legal landscape for companies including BCause.
It’s not easy, because even the regulators don’t agree on what bitcoin is. A virtual currency would fall under one type of oversight, for money transmitters. But the IRS has deemed bitcoin an asset, not a currency.
Some states, like New York, have begun to develop market rules and regulation for cybercurrency trading. At the same time, courts across the country are deciding on bitcoin-related cases, building a grassroots form of regulation.
“The law about bitcoin is going to develop out of the disputes that people have,” Speckhart said. “Watching the law evolve this way is sheer beauty for me.”
Speckhart is fascinated with finance. At Georgetown University, she studied economics and later worked for an investment firm on the derivatives desk, assessing risk, before turning to law.
“I love money and how it works itself around the economy,” she said. “If you think of the economy like the human body, money is the blood and the veins.”
Speckhart’s clients include many banks, which she represents in bankruptcy cases as creditors. She doesn’t see bitcoin as a rejection of the traditional financial system, just a new way to maneuver within it.
“I would tell people to approach it as a scientific innovation,” she said. “People need to keep an open mind.”
In March, Scribner met Flake and Speckhart for the first time over lunch at Stan’s American Bistro in Virginia Beach. He helped Speckhart set up a bitcoin address and “wallet” on her smartphone through the website BlockChain.info, which gives access to the public ledger, or block chain, where all bitcoin transactions are recorded.
“Let me log in and I’ll throw you some satoshis,” Scribner told Speckhart, referring to the smallest denomination of bitcoin, like a penny is to a dollar, named for the supposed creator of bitcoin, Satoshi Nakamoto. Not even bitcoin diehards are sure whether Nakamoto is a single person or a group of developers.
Scribner, who is 33 and a bit of a techno-junkie, got interested in bitcoin as a hobby. Then he realized the business benefits. For a small company like his family’s, Advanced Aeromedical, credit card processing fees hurt the bottom line. The major payment network processors, such as Visa and MasterCard, can take a cut of 3 percent or more, plus a flat rate for each transaction.
Bitcoin offers an alternative without such a middleman. Bitcoin payments cost 1 percent or less to process through companies such as Coinbase, which allows a business to accept bitcoin and converts the currency back into U.S. dollars.
To Scribner, bitcoin is the financial equivalent of Napster, the now-defunct online music trading system. Users could share digital song files and musicians could reach listeners without the need for a record label. Through bitcoin, individuals trade money without the need for a bank-issued check, credit card or cash.
Scribner has made it his mission to convert a restaurant or bar where he and fellow members of the Hampton Roads Bitcoin Meetup group can gather and spend their bitcoins. He has visited numerous businesses, handing out a brochure he made under a new logo and educational website, CoastalBitcoin.com.
Until Doumar’s, it was not an easy sell.
“I don’t think the owners would be interested in bitcoins,” Keali’i Canino, general manager of Zeke’s Beans & Bowls, told Scribner when he arrived at the Virginia Beach café on a recent morning.
“What is it actually? I’ve never heard of it,” said Roy Clemenz, Zeke’s barista.
After his usual explanation, Scribner ordered a coffee. “Are you doing cash or card for it?” Clemenz asked.
“Well,” Scribner replied, taking out his wallet, “if you don’t take bitcoin …”
Carolyn Shapiro, 757-446-2270, firstname.lastname@example.org