Bitcoins come to New York City bar

via yelp.com

 

New York loves to be ahead of the curve and EVR, a bar in midtown Manhattan, is no different. EVR now accepts payment in the form of Bitcoins, digital money that is not tied to any central bank.

The controversy over Bitcoins has received a lot of media attention from sources such as CNNMoney, Yahoo, and Wired in recent weeks due to its fluctuating value. In February, the value of one individual Bitcoin was $20, but rose to $250 in recent weeks, and then fell to $150 on April 11.

Bitcoins are mathematically generated by computers through algorithms in a process called “mining,” but the algorithms become more complex over time to ensure the value of the currency. Bitcoin users acquire the digital currency by purchasing them from other users or by trading goods with Bitcoins owners. They can be stored in an electronic device such as a cellphone or computer, can be instantly transferred, are anonymous and do not go through any third-party financial institutions.
For EVR founder Ian Magid, accepting Bitcoins was “a no-brainer.”

“There is a lower processing rate than credit cards, roughly one percent processing rate versus 2.5 to 3.5 percent for credit cards,” explained Ian Magid, operating owner of EVR and a Stern alumnus. “In terms of cash flow, Bitcoins make EVR run more efficiently, with money being deposited in our account the next day instead of taking two to five days with normal credit card processing.”

EVR has only been accepting Bitcoins for a short while, but about 20 customers have already used it as a payment method through a special app. CNNMoney reported that, according to co-founder and CEO of BitPay Anthony Gallippy, over 100 global retailers are using the app.

Magid said businesses will start accepting Bitcoins because they are easy to use and allow business to run more effectively at a lower processing cost.

However, Stern professor of finance Matteo Maggiori pointed out that two evident advantages of Bitcoins may turn out to do more harm than good.

“Two often cited advantages [of Bitcoins] are the absence of a central bank and the control of the supply via computer mining,” he said.

“Think of the problems with pure commodity money, like a strict gold standard — we abandoned it and progressively switched to fiat money precisely because of the inability to control the money supply,” he said.

Maggiori conceded that Bitcoins have a useful potential as an international payment system. However, it does not appear that students will be jumping on the Bitcoin bandwagon anytime soon.

“I like not having to worry about cash or credit cards, but I don’t like that the value changes,” said Caroline Kaplan, a Tisch sophomore. “Plus, it seems really difficult to get Bitcoins.”

Furthermore, value could be a problem for Bitcoin in the future, Maggiori said.

“Electronic currency seems to be a pure coordination phenomenon.” Maggiori said. “These types of assets are very volatile and subject to shifts in people’s expectations about their reliability. Governments go to great pains to make their money a credible store of value — it is unclear that the same holds for bit-currency.”

A version of this article appeared in the Monday, April 22 print edition. Lesley Greenberg is a staff writer. Email her at [email protected]