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Wednesday, May 15, 2013

Manchester company creates an ATM for the digital currency Bitcoin

MANCHESTER – Entrepreneurs developing new products often face an uphill battle explaining value to customers, but the learning curve doesn’t get much steeper than when you’re working with Bitcoin, the digital sort-of currency that has drawn fascination, uncertainty and derision since it exploded on the scene this winter.

“First there’s wrapping your head around the technology … then there’s wrapping your head around what this means for the future of payments and financial institutions,” said Zach Harvey, of Manchester, one-third of the firm Lamassu Bitcoin Ventures, which is about to unveil the first ATM that can turn paper money into Bitcoins. “But once you realize how powerful it is, it makes other technology feel ancient. We want to give you the tools for a new financial world that may not need currency the way we need it today.” ...

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MANCHESTER – Entrepreneurs developing new products often face an uphill battle explaining value to customers, but the learning curve doesn’t get much steeper than when you’re working with Bitcoin, the digital sort-of currency that has drawn fascination, uncertainty and derision since it exploded on the scene this winter.

“First there’s wrapping your head around the technology … then there’s wrapping your head around what this means for the future of payments and financial institutions,” said Zach Harvey, of Manchester, one-third of the firm Lamassu Bitcoin Ventures, which is about to unveil the first ATM that can turn paper money into Bitcoins. “But once you realize how powerful it is, it makes other technology feel ancient. We want to give you the tools for a new financial world that may not need currency the way we need it today.”

Harvey and his brother Josh brought their guitar store to the U.S., because their native Israel had too much regulation. They have dual citizenship.

They were drawn to New Hampshire by the ideals of the Free State Project, which has embraced Bitcoin because it’s free of government control. They soon became part of the Bitcoin Meetup group in Manchester. This led them to the idea of creating an ATM, a project that has pushed the online guitar store into semi-hiatus.

They brought a prototype to the Liberty Forum held in February at the Radisson Hotel Nashua, and dispensed $5,500 worth of Bitcoin, which is now worth about four times as much. The enthusiasm helped prod the next move, hiring a developer – in Portugal – and moving ahead with development.

They plan to unveil the machine at the Bitcoin 2013 Conference in San Jose, Calif., on Friday and have the first ATMs for sale by the end of the summer, at around $5,000 apiece. So far, the business is self-funded, although Harvey said they may be looking for investors if all goes well.

Bitcoin is a digital medium of exchange. It has no centralized authority standing behind it – government or company – so it’s not really a currency as most people understand the term.

That decentralized nature is the central concern of detractors, who call it a sort of geeky Ponzi scheme that will collapse when the novelty wears off. When the price of Bitcoin fell by $100 in a few hours on April 10, those fears seem realized – imagine if the $100 in your wallet was suddenly worth only $60 – but its value has been more stable in recent weeks.

The decentralized nature is the central joy of advocates, who paint it as the medium of exchange for the future, freed of the artificial constraints and controls imposed by governments.

Bitcoin is so decentralized that it doesn’t even have an unofficial leader, the way Linus Torvalds “leads” the Linux open-source software movement. The authentication software at the heart of Bitcoin, the thing that keeps you from spending a Bitcoin more than once, was developed by an anonymous person or persons. The technology is fascinating, if hard to describe, as is the carefully limited release of new Bitcoins, which, in theory at least, should keep it from hyperinflation.

You can buy Bitcoins using a rate of exchange that fluctuates constantly – $119 as this is typed, although it has fluctuated between $2 and $260 in the past year – and then sell them, trying to make a profit.

Or you can use them like money to buy products or services at some online retailers who accept the currency, most notoriously the online black market Silk Road but also legitimate stores, and at a very few real-world locations, including Vertical Dreams climbing gym in Nashua and Manchester. Advocates are constantly trying to line up more stores to take Bitcoin.

Bitcoin have been flirting with the mainstream lately as their price soared. Notably, the venture capital firm Liberty City Ventures in New York City recently announced a $15 million fund for Bitcoin and other digital currency startups.

Currently, the process of buying Bitcoins can be tedious, involving online marketplaces like the oddly named Mt. Gox, involving applications and registration processes that can take weeks.

Hence, the idea of an ATM, in which paper bills can be turned into digital signals in your cell phone within a few seconds, no registration needed. It does not turn Bitcoins back into cash, however – that can be harder.

The Harvey brothers and partner Matt Whitlock plan to sell the ATMs outright; at least one other Bitcoin ATM developer plans to lease them.

“You may want to run it yourself, or work with a service provider in the area may lease them, or place them for free and give a commission,” Harvey said.

Harvey said Bitcoin is still in its first stage of acceptance, used by enthusiasts, but that he feels it’s ready to start edging into general commerce.

“As bitcoin grows, essentially they will be replacing banks. You will have your own bank on you. Once you realized how powerful it is, it makes financial technology feel ancient,” he argued. “I remember when e-commerce started. People said nobody’s ever going to use e-commerce; nobody’s going to send their credit card numbers over the Internet!”

David Brooks can be reached at 594-6531 or dbrooks@nashua
telegraph.com. Also, follow Brooks on Twitter (@Telegraph_DaveB).