If you don’t understand what a bitcoin is, these Toronto entrepreneurs are here to help.
“When the Internet started, nobody understood how to send emails,” said Rodolfo Novak.
Just as electronic mail has become a ubiquitous communication tool, Novak says the emerging digital currency will increasingly be used for everyday purchases.
To that end, Toronto’s bitcoin believers are launching services to put virtual coins in your real-life wallet, and challenge the domain of traditional banks.
Novak is one of the founders of Coinkite, a bitcoin banking website. Coinkite accounts link the virtual coins to a debit card, which works with a card reader Novak is selling to merchants.
“Right now, bitcoin is accepted on thousands of online shops. But it’s difficult to get brick-and-mortar shops to accept it,” said Anthony Di Iorio, the executive director of theBitcoin Alliance of Canada, a non-profit Toronto-based organization.
Novak aims to bridge that gap by selling the technology for merchants to easily accept bitcoins at the cash register.
“As bitcoin gets more and more accepted, there’s going to be more and more people demanding to use it,” Di Iorio said.
Unlike credit cards, which cost merchants with every swipe of a Visa or MasterCard, there is no cost to accept bitcoin, Di Iorio said.
“We’re really trying to integrate bitcoin into the mainstream,” said Jamie Robinson, the founder of Toronto-based QuickBT.
Robinson’s website allows anyone with a debit card to buy bitcoins instantly with Interac.
“It simplifies a long process that is really a barrier to entry,” Robinson said.
Robinson said the service, which launched less than three months ago and is only available to Canadians, has already processed millions of dollars in transactions. Robinson said he is planning to expand to Australia and Europe.
Novak also has an eye on potential users in the developing world.
“Most of the world doesn’t have a bank account. We want them to bank with us,” Novak said.
Access fees charged by existing banks are a barrier to traditional finance, which Novak said bitcoin can overcome.
“Five cents, a dollar, for you and me is not that much as an overcharge on a payment,” Novak said. “The relative fee for a person in a third-world country is a lot of money.”
Both Novak and Robinson charge small fees for their services. The higher fees charged by money-transfer services such as Western Union offer a prime opportunity for bitcoin to prove its superiority, Novak said. “It still takes 24 hours to send a wire transfer to our factory in China. It’s unacceptable.”
In contrast, the digital coins can be instantly transferred anywhere in the world for free.
Because they are untraceable and unregulated, bitcoins have garnered a reputation as a convenient way for criminals to move money across borders undetected. Last month, U.S. authorities shut down Silk Road, a billion-dollar website that sold drugs, weapons and fake IDs for bitcoins.
But Di Iorio said people have to look past the bad press.
“The benefits of bitcoin far outweigh anything like that,” Di Iorio said.
Unlike the loonies and toonies in your pocket, a bitcoin is not issued by a national government’s central bank.
A bitcoin is created by computer program, which uses a complex cryptographic algorithm to prevent people from fabricating their own counterfeit coins.
Anyone with an Internet connection can trade bitcoins, making it a free alternative to PayPal or credit cards for online purchases.
To safeguard against fraud, anyone can view every bitcoin transaction ever made. But the virtual wallets in which bitcoins are stored are not linked to any personal information.
Because there are a fixed number of bitcoins in existence, their value fluctuates as they are bought and sold on open exchanges, similar to a commodity such as gold.
Today an individual bitcoin is worth more than $200, and the current value of all bitcoins in circulation is more than $2.5 billion.