The Bitcoin Continues to Gain Credibility From Merchants and the Fed

When Jeff Klee was asked by a client if his travel agency, CheapAir.com, would accept Bitcoins, he admitted he didn't even know what they were. He didn't know that thousands of merchants were already accepting them in payment for services and products, such as WordPress, OKCupid, and even Richard Branson’s Virgin Galactic on which Klee no doubt had already booked some of his clients.

Once he learned what they were, and found a digital “wallet” — Coinbase — to help him manage the transactions, he saw the marketing advantage: “We expect people to come to us especially because they can use Bitcoin.” Klee isn't taking much of a risk as more than 14,000 merchants already use Coinbase, which has opened up nearly half a million Bitcoin wallets for its customers. Said Klee: “If you have a lot of people accepting it, it becomes a useful and legitimate form of payment.”

That’s the ruling that Federal Judge Amos Mazzant made back in August when he said that “Bitcoin can be used as money. It can be used to purchase goods or services … it can also be exchanged for conventional currencies such as the U.S. dollar, Euro, Yen and Yuan.”



The Bitcoin gained some more credibility when the Senate Homeland Security and Governmental Affairs Committee invited six federal agencies to testify about it, along with numerous other interested parties. One of those “interested parties” was Federal Reserve Chairman Ben Bernanke, who sent the committee a letter expressing his view that such currencies as the Bitcoin “may hold long-term promise.” On that day the market value of the Bitcoin jumped $40 to $785. As of Tuesday, November 26, a Bitcoin was worth $840.

This was followed in short order by an article in the New York Times that asked rhetorically if the Bitcoin was just a passing fad, or if it had legs. The author found a skeptic who said that “In a matter of months you won’t be hearing about it. It will go the same way of Paris Hilton.”

Not if China has anything to say about it. On October 15 Baidu Jiasule, a firewall service for websites in China, announced that it would begin accepting Bitcoins for its services. This didn't happen in a vacuum, as Gordon Chang pointed out in Forbes magazine:

It is inconceivable that Baidu would permit the acceptance of Bitcoins without first clearing the matter with Beijing authorities.

At present there are almost 20 trading platforms handling Bitcoin transactions in China, and BTC China is the largest one in the world. China itself accounts for more than half of the daily turnover in the Bitcoin digital currency.

The multinational online store eBay announced early in November that its online payments unit Paypal may add the Bitcoin to the present range of digital currencies it already accepts.

The biggest boost to Bitcoin’s credibility came, however, from an unlikely source: the Federal Reserve Bank of Chicago. It just published its “Bitcoin Primer,” in which senior economist Francois Velde explained that money is a medium of exchange: “something that is accepted in exchange for a valuable good or service, not for itself but to be exchanged later for another good or service.” He added: