The Bitcoin Industry Takes Root in Austin

By LAURA LOREK
Founder of Silicon Hills News

A new industry is brewing in Austin in a back room at Scholz Garten where dozens of people meet regularly to talk about Bitcoins.
They are pioneers in the crypto-currency marketplace, founded in 2009 with the birth of Bitcoins.
The industry is in its infancy, but gaining in popularity.
People all over the world use crypto-currencies to pay for goods and services using computer codes, instead of paper money. The crypto-currencies are not backed by any government, but rely on peer-to-peer computer systems to complete the transactions.
Satoshi Nakamoto is the pseudonymous creator of the first Bitcoin in 2009 but little is known about him, including his real name. He left the project a year later.
“That’s part of the mystery that surrounded Bitcoins initially,” said Paul Snow, one of the co-founders of the Bitcoin and Crypto-currency Austin meetup, which has 189 members. They held their first meeting this summer. As Snow explains the industry, other developers took over where Nakamoto left off and Bitcoins have become a widely adopted virtual currency.
“It’s the first global currency that has ever been introduced into the economy,” Snow said.
But Bitcoins are not without their controversy. They have attracted the interest of the Federal government, which held the first Congressional hearing on the risks and promises of virtual currencies last month.
Bitcoins also entered into the global spotlight when the Federal Bureau of Investigations shut down the Silk Road, an illegal online marketplace in October. The Silk Road, which traded in guns, drugs and other illegal goods, ran solely on Bitcoins. Some thought the end of the Silk Road would be the end of Bitcoins. But while the currency took a dip in value, it went on to soar to new heights in value.

Bitcoin Startups in Austin

Sunday night, about 40 people attend the Austin meetup, held just a few days before Christmas, to find out more about the popular, yet highly volatile digital currency. Some of them run their own Bitcoin startups, while others just wanted to learn more about this emerging currency. A Bitcoin “tipjar” sat at the bar with a QR code for people to scan with their mobile phone to donate money to support the meetup.
Others at the meeting handed out Bitcoin buttons for people to wear to create awareness about the new industry. One woman handed out sheets of “Bitcoin accepted here” stickers. One of the organizers held up a T-shirt, which he had created to generate buzz about the new currency.
In 2013, Bitcoin started off around $19 a coin and soared as high as $1,200 before losing half its value a few weeks ago. Bitcoin currently sells for around $730, according to Coinbase.com, an international Bitcoin exchange marketplace.
Dozens of websites online offer information about Bitcoins. Online magazines cover the industry and Bitcoincharts.com tracks the history of the coin’s trading value and the number in circulation.

Governments have attempted to regulate it

Earlier this month, China attempted to shut down the Bitcoin industry in its country. The government blocked Bitcoin exchanges from accepting China’s currency Renminbi from Bitcoin buyers.
China’s crackdown on Bitcoins sent the price plunging. It has since recovered.
“The real problem is people look at Bitcoin like it’s a stock, but it’s not a stock, it’s a currency,” Snow said.
The focus of the Austin meetup group is to foster the development of this new industry by supporting Bitcoin startups, Snow said. About a half-dozen entrepreneurs plan or have launched Bitcoin companies in the Austin area, Snow said.
Chief among them is CoinTerra, which designs and produces Bitcoin mining computer systems. The startup launched last summer with $1.5 million in angel funding. It sells “GoldStrike” processors and 2/TH/s TerraMiner IV Bitcoin miner rigs – both representing the highest performance Bitcoin miner hardware,” which costs $5,999 per machine.
The richest companies in the California Gold Rush supplied the pickaxes and other tools to mine for the gold. That may be the same trend in the Bitcoin industry.
Bitcoin miners create new Bitcoins by solving complex computer algorithms. For each equation solved, a certain number of new Bitcoins are created. Early on, people could mine Bitcoins relatively easily with a home computer. But now more than 12 million Bitcoins exist and it’s become increasingly more difficult to mine Bitcoins, Snow said. The process requires super-computer capacity and a lot of electricity, he said. Only 21 million Bitcoins exist, Snow said. So it has becomes increasingly difficult to mine for new coins, he said.

Retailers Accepting Bitcoins

David Johnson, one of the founders of Bit Angels, an investment group targeting Bitcoin and crypto-currency startups, is based in Austin. It has made several investments into Bitcoin startups.
Other startups like Bitstein Consulting, founded in 2013 by Michael Goldstein, a University of Texas computer science student, help businesses adopt Bitcoins. He has helped Brave New Books, which now accepts Bitcoin as payment for merchandise.
Other retailers in Austin plan to begin accepting Bitcoins too, said Snow. He accesses his Bitcoins, which are stored online in a digital wallet, through his mobile phone. He’s the only person who has the code to his wallet.
That’s how Bitcoins work. It’s essentially a computer code online that people exchange to pay for goods and services. It’s really popular for making micro-payments online, Snow said.
Bitpay, which is an Internet application that processes Bitcoin transactions, completed more than $100 million worth of transactions this year, according to Coindesk.com. It has more than 15,000 merchants in its network. Overstock.com announced it would begin accepting Bitcoins for payment next year.
Snow says his dentist plans to begin accepting Bitcoins in 2014 and Scholz Garten, where they hold their meetups does too, he said.
And next year a few conferences are planned to shine a spotlight on the local industry even more.
Snow is one of the organizers of the Texas Bitcoin Conference to be held at the Circuit of the Americas on March 6th.
Darrel Malone Jr. is also working with a group to produce NextEcon.org on Jan. 25 at Austin Community College Eastview campus. The conference focuses on alternative currencies and it includes a bazaar run exclusively on alternative money.

And Cryptotrustpoint.com, a mediation service for exchanging Bitcoins into U.S. dollars, plans to launch early next year in San Antonio, said Joshua Schechter, one of the founders. It is working with San Antonio-based startup Akimbo, which is a debit card company.
“There’s a difficulty in exchanging between Bitcoins and dollars at this point,” Schechter said. “We’re here to solve that problem.”
On Dec. 10-11, Schechter attended Inside Bitcoins, a conference and expo on virtual currencies at the MGM Grand in Las Vegas.
The currency appeals to Libertarians and others who believe governments should not have so much power, he said.
“Some think that 2014 is the year of the Bitcoin,” Schechter said.