As the digital currency bitcoin continues to draw attention for its fluctuating values, some Frederick County businesses are starting to accept it as payments.
Dave Schmidt, operations manager of the heating and air conditioning business Frederick Air, said his shop now accepts the digital currency as a way to reduce costs for customers.
If he doesn’t have to pay the financing fees associated with processing credit card payments, which he said costs about 3 percent per bill, he can pass those savings along to customers, Schmidt said.
Frederick Air also began accepting PayPal and Apple Pay last year.
Bitcoin is a digital cryptocurrency that uses encryption technology to shield the identities of buyers and sellers. But the encrypted identities of the users are maintained on a public ledger to record and verify transactions.
While most customers won’t use cryptocurrency such as bitcoin, Schmidt wanted to have it available as an option for those who do.
Since its first appearance in January 2009, bitcoin has mostly been seen as a high-tech curiosity used by a small group of people, according to the Congressional Research Service in a 2015 report.
During 2014, the value of its daily transaction volume around the world fluctuated between $40 million and $60 million, which reflected between 50,000 and 90,000 transactions per day, according to CRS.
Meanwhile, the credit card company Visa said its total dollar volume was $6.9 trillion, with an average of about 24 million transactions per day.
Bitcoin offers a mix of benefits and problems in expanding its reach to other users.
“Bitcoin offers users the advantage of lower transaction costs, increased privacy, and long-term protection of loss of purchasing power from inflation,” according to CRS. “However, it also has a number of disadvantages that could hinder wider use. These include sizable volatility of the price of Bitcoins, uncertain security from theft and fraud, and a long-term deflationary bias that encourages the hoarding of Bitcoins.”
Bitcoin can be obtained — once a user downloads the software — by either exchanging currency such as dollars or euros, in exchange for goods or services, or by “mining” them by using their computer’s processing power to verify the validity of other users’ transactions.
The currency has attracted speculators who buy them up, some of whom have owned their bitcoin for years through numerous fluctuations in value.
But unlike those speculators, Schmidt said Frederick Air immediately converts any bitcoin it receives into cash.
“Someone will buy those bitcoins for real dollars,” he said.
In December, departing Federal Reserve Chairwoman Janet Yellen said in a news conference that she believes that bitcoin plays such a small role in the country’s financial system that it doesn’t present a significant threat to that system.
“Often, risks threatening financial stability arise when there’s exposure of the banking system to fluctuating asset valuations, and I really don’t see any significant exposure of our core financial institutions to threats from Bitcoin if its value were to fluctuate,” Yellen said, according to a transcript of her statement. “I don’t see a threat to our core financial institutions, so undoubtedly, there are individuals who could lose a lot of money if Bitcoin were to fall in price, but I really don’t see that as creating a full-blown financial stability risk.”
But Randal Quarles, Fed vice chairman for supervision, told a group in November that he believes that bitcoin and other cryptocurrencies could pose a threat if they become more widely used.
“While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage,” Quarles said. “Risk management can act as a mitigant, but if the central asset in a payment system cannot be predictably redeemed for the U.S. dollar at a stable exchange rate in times of adversity, the resulting price risk and potential liquidity and credit risk pose a large challenge for the system.”
But Lewis Hotchkiss, the owner of VRocks Vape Shop in Frederick, said younger customers are increasingly interested in using the currency.
He gets two to three customers a week looking to use cryptocurrency, including bitcoin.
Hotchkiss said he bought his first bitcoin in 2013 or 2014, and he’s been waiting patiently for it to really take off.
Like Schmidt, he sees it as another option that customers can use if they want to.
As a business owner, Hotchkiss likes it because it means he doesn’t have to have cash sitting around, and he can make fewer trips to the bank.
He expects that in the next two or three years, 90 percent of online transactions will come from cryptocurrency.
“I think it’s going to become a big part of our economy,” Hotchkiss said.