As 1,200 members of the Bitcoin community attended their North American conference in Miami Beach in January, Antonio Maldonado and Jessica Londono were negotiating the sale of a 40-foot catamaran sailboat to a Turkish client for $250,000 — in bitcoins.
“It’s just another way to bring in business,” says Londono, who with Maldonado owns Miami Beach-based The Advantaged Yacht Charters & Sales. “We see it as just another market out there,” a niche market that trades in a new kind of money.
Bitcoin is a digital currency that users electronically spend like cash in a decentralized peer-to-peer payment network. That means there is no middleman in the transaction and no centralized authority controlling the currency. The Advantaged, a 9-year-old yacht business, has accepted bitcoins as payment since October.
Londono says it was kind of a no-brainer. The value of a bitcoin, though volatile, soared from $13 in early 2013 to $1,200 in December, then fell to $825 in February. As a result, Bitcoin has created “overnight millionaires” among those who jumped on the bandwagon early, Londono says. Because not many brick-and-mortar establishments accept bitcoins, “they need someplace to spend it.” Why not spend it on a boat or a charter? Londono says she has taken payments for several charters in bitcoins, one for conferees during the Bitcoin get-together.
As far as Londono knows, The Advantaged is the nation’s first boating business to accept bitcoins. Its website, theadvantaged.com, lists Visa, MasterCard, American Express, wire transfer and bitcoins as acceptable mediums of exchange. The Advantaged charters 28 yachts from 40 to 130 feet with a captain and stewardess, and offers custom catering, entertainment and water toys.
When she receives a payment in bitcoins, Londono exchanges most of them for dollars at an exchange so she can pay the yacht crew, mechanics, slip fees and other business expenses in traditional currency — which she expects to keep doing — but she keeps some of the bitcoins from each transaction as an investment. “It’s like stock,” she says. “It does fluctuate. We keep coins and invest them. You trust that hopefully you’ll make some money over the long term. From what we have seen, use of it is growing. In one year’s time, the value has grown tremendously. We’ll see what happens over another year’s time.”
Londono says Bitcoin has advantages over traditional currencies and credit cards. There are no transaction fees — credit card processing fees run 2 to 3 percent — although at some point they may become necessary. Bitcoin also facilitates foreign transactions and tourist transactions. No currency exchange is required, so there are no currency exchange fees. Bitcoins are transferred from the buyer’s “electronic wallet” directly to the seller’s electronic wallet.
“Miners,” people with computer software capable of solving complex algorithms, “find” blocks of these transactions by solving the algorithms, and in doing this they verify the transactions and “earn” bitcoins as a verification fee. Usually six verifications confirm that the transaction has taken place. Then it goes into a shared public record called the “block chain” that records the transaction — not by the identities of the buyer and seller but by the electronic addresses of their wallets. That takes about 10 minutes because every 10 minutes a block of transactions is confirmed to the block chain.
This competitive confirmation process carries a reward of 25 bitcoins per block. This is how the number of bitcoins grows. Since 2009, more than 12 million bitcoins have been placed into circulation. The supply is capped at 21 million. The creation rate will be halved periodically.
The value of a bitcoin is determined by its acceptance, which is reflected in the demand for its use. There is no national authority managing or controlling bitcoins, so they may face an uphill battle for widespread acceptance. Also, there have been incidents of electronic wallets being compromised by hackers, leading to the theft of bitcoins.
In November, Bitcoin got a shot in the arm when acting assistant U.S. attorney general Mythili Raman told the Senate Homeland Security Committee that virtual currencies are not illegal. Afterward, the value of a bitcoin shot up 25 percent, to $600. Another expert, Jennifer Shasky, of the Financial Crimes Enforcement Network, says that if this payment system is going to survive and be a significant player in the financial system, regulation at home and abroad will have to catch up.
The Senate began investigating Bitcoin in response to reports of the currency’s use in illegal online marketplaces such as the “Silk Road,” where illegal drugs and services, including hacking, were bought and sold using the hard-to-trace bitcoins. In January, the FBI arrested virtual currency trader Robert Faiella and Charlie Shrem, CEO of bitcoin exchange BitInstant, accusing them of selling $1 million in bitcoins to drug traffickers.
“Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,” U.S. Attorney Preet Bharara says.
With all of the negative and positive press surrounding Bitcoin, many see the virtual money as a risky investment. “Bitcoins are associated with a high level of risk, as they are volatile, not time-tested and currently under no regulation or legislation,” says one online currency exchange that includes bitcoin exchange rates on its menu.
Londono does not deny that there is risk in investing in bitcoins, but she says they still work as a medium of exchange, and there is a lot of bitcoin out there that can be used to buy a boat or charter. “The key here is that it broadens our business,” she says. “We’re trying to be the trend-setter in this market.”
This article originally appeared in the March 2014 issue.