Cleveland Heights merchants banking on Bitcoin Boulevard to draw global spotlight; skeptics warn of risks

"I think we're on the ground level of something that could potentially do very well," said Bill Mitchell of Mitchell's Fine Chocolates. "I think it gives the street a little bit of uniqueness that other streets don't have."

CLEVELAND HEIGHTS, Ohio -- To hear the merchants on Lee Road tell it, accepting Bitcoin will help brand Cleveland Heights as a cutting-edge, tech-friendly community and a retail destination for people who want to spend the global currency.

But skeptics say that becoming America's first Bitcoin Boulevard may not be worth the risks and uncertainties associated with the still-new technology.

On Friday, the Ohio Department of Public Safety ruled that "Bitcoin cannot be accepted as payment for alcohol in the State of Ohio." The decision came in response to an inquiry from the Bottlehouse Brewing Co. about whether accepting bitcoin would jeopardize its liquor license.

Eric Wolf, agent-in-charge with the Ohio Investigative Unit of the Ohio Department of Public Safety in Columbus, said that because Bitcoin's value fluctuates so much, it is more like a commodity and "not recognized as legal currency." 

Lisa Dunn, owner of Revive Fair Trade Eco-Boutique, a fair-trade clothing, jewelry and gift shop, said that as a business owner who supports international development, she liked the idea of having another more widely circulated form of payment in her wallet. As a retailer who works directly with the artisans and grassroots groups that produce what she sells, "we've always been very globally minded," Dunn said.

She sees the Bitcoin Boulevard U.S., launching May 1, as a smart way to spotlight all the unique and fiercely independent businesses in the Cedar-Lee Business District, as well as their entrepreneur-minded owners.

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Clik here to view.View full sizeNikhil Chand, founder of Bitcoin consultancy CoinNEO, stands in front of a craft beer display at The Wine Spot, which has been accepting virtual bitcoin payments for months.Gus Chan, The Plain Dealer

That's exactly what Nikhil Chand envisioned when he proposed creating a Bitcoin-welcoming commercial district that would help put Northeast Ohio on the map.

Bitcoin, sometimes described as internet cash, is a completely digital form of currency, powered by open-source software and a peer-to-peer payment network among users that is not regulated or controlled by any monetary authority.

Consumers download a mobile app or computer program to create a virtual wallet from which they can add or spend Bitcoins. Users tap in the amount they're spending and scan the QR code of the merchant they're buying from, and the transaction is electronically verified and approved.

"We all know that it's kind of an obscure topic, so really, part of his concept is to raise awareness and get the discussion started at the local level," said Chand, founder of the Bitcoin consultancy CoinNEO.

"This is one of our goals: to have a locale for people who want to learn more, and where people can come to get answers to their questions, and there have been many," he said. "We want to invite the general public to this as a way to showcase our businesses."

That's why the May 1 event will start with a Bitcoin meetup at 6 p.m., after which participants will be able to talk with any of the merchants -- and spend down their virtual wallets.

The Cleveland Heights merchants are the second community in the world to create such a district, after the first Bitcoin Boulevard launched in the Netherlands last month.

"I took an interest in digital currencies a while ago, but I was really curious to see how it would work if you got it into the hands of real people," Chand said. He said he has reached out to the organizers of the original Bitcoin Boulevard, and that they have been especially supportive of the Cleveland Heights effort.

Adam and Susan Fleischer, co-owners of The Wine Spot, were the first to accept Bitcoin at their wine, beer and merchandise store. "Nikhil Chand kind of got us behind Bitcoin," Adam Fleischer said. "His whole idea was creating a destination where Bitcoin holders can go and not just purchase a product, but have dinner or go see a movie."

Fleischer said that in the wake of Friday's Department of Public Safety decision, he will reevaluate accepting Bitcoin in his store. The other businesses that serve alcohol could not be reached on Friday.

He liked that Bitcoin charges a flat 1-percent fee on transactions, instead of the 2.5 percent to 4 percent he has to eat when customers pay with credit cards. "We're an independent, family-owned business, so we're always looking at ways to save costs," he said. "For my customers, it gives them yet another way to pay for a product. Perhaps it's one less credit card to carry.

"We're definitely getting some Bitcoin business, although it's nowhere near the level of credit cards," he added. "We've had people drive in from as far away as Youngstown, because they've heard we accept Bitcoin. They're always looking for places to spend it."

"Our cost of entry was literally zero," Fleischer said. Business owners simply "click on the Bitcoin app, create a QR code, the [customer's] wallet app reads the QR code, and sends me a confirmation code. It works very much like a credit card."

"We convert it to U.S. dollars immediately, because from my point of view, that kind of minimizes our exposure," if the value fluctuates, he added. "There are other internet based currencies out there, like iTunes dollars. What I tell people is 'What I'm embracing is a new and emerging technology.'"

Dunn agreed. "We see very low risk on our end, because it's pretty much automatically converted into cash for us. We didn't really need to have much of an investment in order to accept Bitcoin."

But not everyone is convinced that Bitcoin is the currency of the future. 

William Mahnic, associate professor banking and finance at Case Western Reserve University's Weatherhead School of Management, doesn't think Bitcoin Boulevard will be as significant as the business owners think it will.

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Clik here to view.View full sizeBitcoin users must scan the QR code of the merchant they're purchasing from to send them payment in bitcoin.Gus Chan, The Plain Dealer

 "I think Bitcoin is going to be sort of like the pet rock," he said.

"Why take payment in something whose value could drop, when you could take payment in dollars? If you were to go out and ask people: 'i'll give you this $10 bill or this piece of paper that's worth $10 now, but may not be worth $10 when you give it back to me,' what do you think people would take?"

Other than saving money on credit card transaction fees, Mahnic said the merchants are really trying to make a political statement of "let's be rebels and play outside the system."

Bitcoin's value comes from its relationship to other currencies, he said. If someone buys Bitcoin in order to spend it at a store, "I don't know what that Bitcoin is going to be worth when I convert it back into dollars," he said.

"I do know that less than half of 1 percent of all retailers accept Bitcoin, so it's highly unlikely that their suppliers will accept it as payment," he added. "So they have to every day, convert their Bitcoin back into dollars, and they may not know what they may be losing by taking that exchange risk."

When Federal Reserve Chair Janet Yellen was asked about Bitcoin in February, she said, according to Business Insider, that "Bitcoin is a payment innovation that's taking place outside the banking industry. To the best of my knowledge there's no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn't have authority to supervise or regulate Bitcoin in any way."

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Clik here to view.View full sizeMt. Gox Chief Executive Mark Karpeles, second from right, at a press conference at the Justice Ministry in Tokyo, after a court rejected its bankruptcy protection application. Mt. Gox, a trading platform and storehouse for the bitcoin virtual currency, went offline in February, after Karpeles said that 850,000 bitcoins worth several hundred million dollars were unaccounted for.Associated Press file

David S. Cohen, undersecretary of Terrorism and Financial Intelligence for the U.S. Treasury Department, said in a speech last month that despite the intense enthusiasm toward embracing virtual currency, it still poses risks for consumers, investors, and for national security.

"One way virtual currency is different from cash, and different from other established payment mechanisms, is that users of virtual currency today can transfer value -- around town, across the country, and over oceans -- in the blink of an eye with comparatively little, or in some cases, no regulatory oversight."

"This poses clear risks to consumers and investors alike. For consumers, anonymity and transaction irrevocability expose them to theft or fraud," he said. "And unlike FDIC-insured banks and credit unions that guarantee the safety of deposits, there are no such safeguards provided to virtual wallets. Similarly, investors in virtual currency today lack the standard protections applied to the purchase of a security or a commodity."

Cohen said virtual currency also carries the risk that it will be used for illicit purposes by those drawn by its anonymity. The U.S. Attorney's Office and the Treasury Department last year helped shut down Liberty Reserve, "a virtual currency system used to facilitate $6 billion worth of illicit web-based activity, including identity fraud, credit card theft, online scams, and dissemination of computer malware." More recently, two Bitcoin exchangers were indicted on charges of money laundering.

And virtual currency also appeals to financiers of terrorism, Cohen said. "If funds could be swiftly sent across borders in a secure, cheap, and highly secretive manner, it would suit their needs well.. and would allow terrorists to better cover their tracks."

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Clik here to view.View full sizeConsumers with too much bitcoin in their virtual wallets will be able to spend it at Mitchell's Fine Chocolates and other Cleveland Heights retailers and merchants starting May 1.Mitchell's Fine Chocolates 

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Clik here to view.View full sizeBottlehouse Brewing Co. did not get the green light it was hoping for from state officials to join its Lee Road neighbors in accepting bitcoin payments starting May 1.John Petkovic, The Plain Dealer 

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