By John Stewart

Putting the Silk Road and Mt. Gox disasters behind it, the Bitcoin train is picking up speed. But what’s the real destination?

If you want to get an idea of how far Bitcoin has come, take a look at what people are buying with it. At Overstock.com, which is one of the biggest merchants so far to accept the digital money, it’s not all what you might expect.

Oh sure, computer accessories and computers rank in the top 10 product categories by Bitcoin spending, as you might think, given the popular image of the average Bitcoin user as a male math nerd in his 20s. But the number-one item is appliances, and even area rugs of all things make the top 10.

Rather than indicating that Bitcoin users fit some nerdy, computer-geek stereotype, what the list really seems to say is that they’re human, with a wide range of wants and needs. And that they are willing to spend big: Right after appliances on the top 10 list comes living-room furniture.

Six years after its emergence in the wake of a deep global recession—which, lest it be overlooked, also featured a harrowing banking crisis—the idea of a cryptologically derived digital currency without central control by governments or banks has begun to pick up some momentum. And right now Bitcoin is the leading exemplar.

More than 75,000 merchants worldwide are accepting Bitcoin now, and last month daily transactions began brushing against, and sometime breached, the 100.000 mark, up around 40% from a year earlier. Companies like Bitpay and Coinbase are issuing digital wallets, making it easier to obtain and spend Bitcoin.

“The crypto revolution is here,” says Patrick M. Byrne, Bitcoin enthusiast and Overstock’s founder, chief executive, and chairman. Likening would-be regulators to King Canute, the legendary monarch who, as a demonstration of human futility in the face of nature, tried to command the tide, Byrne adds, “You’d have more luck outlawing the wind than outlawing the crypto revolution.”

In the United States, at least, what regulators appear to be looking at is not so much a Bitcoin ban as a Bitcoin guardrail. No doubt, as some cryptocurrency backers suspect, some in the federal government distrust Bitcoin because they don’t control it, as the Federal Reserve controls the dollar.

But what worries many would-be regulators is the currency’s built-in anonymity. The FBI shut down the Silk Road site in 2013, alleging it was using Bitcoin to traffic in illicit goods. And yes, authorities also fret about Bitcoin’s distributed, decentralized controls. Those fears rose to new heights last February when a major exchange, Mt. Gox, failed, leaving hundreds of thousands of Bitcoins unaccounted for.

Incidents like that have led to efforts such as those of the New York Department of Financial Services to introduce a so-called BitLicense to vet and keep tabs on exchanges and other cryptocurrency providers.

Still, there can be no denying Bitcoin’s allure, especially for merchants. Transaction costs are typically around 1%, though some acquirers charge nothing and instead levy fees for conversion into dollars. That contrasts favorably with the usual credit and debit card costs merchants bear. And settlement occurs in minutes, something real-time payments enthusiasts can embrace.

By immediately converting their Bitcoins into dollars, merchants can also avoid Bitcoin’s notorious volatility. If you bought Bitcoin at its all-time high, $1,151, in December 2013, your holdings had lost about two-thirds of their value a year later. For this reason, Overstock converts 90% of its Bitcoins.

As it turns out, though, many experts Digital Transactions talked to for this story are less sanguine about Bitcoin itself than they are about its infrastructure. “I’m very excited about the cryptorails,” says Nathalie Reinelt, an Aite Group analyst who is otherwise skeptical about Bitcoin’s prospects.

By “rails,” she and others mean the so-called blockchain, the distributed public ledger that keeps track of unspent Bitcoins, records transactions, and ties owners to their holdings.

If that sounds something like a bank, you’re not far off. And that leads some to see a potent future for this technology. “If I have a public ledger, then I don’t actually need a bank. The essential function of a bank, to keep and account for value, can be done by the blockchain with immediate effect. That’s the revolutionary power of the blockchain,” says Peter Ehmke, a director at consultancy Edgar Dunn & Co. who follows cryptocurrencies.

Indeed, the same blockchain concept that spawned Bitcoin has the potential to control a slew of financial and non-financial applications. Ripple Labs, for example, is using the technology to manage the exchange of currencies worldwide. And Overstock’s Byrne is experimenting with a stock exchange, called Medici, that relies on a public ledger. “It’s all about the blockchain,” he declares.

That could almost be a rallying cry. For some observers, whether Bitcoin itself thrives as a medium of exchange, store of value, or unit of account almost becomes an irrelevant question. “We’re at the beginning of this technology, and Bitcoin is what kicked it off,” says George Peabody, a senior analyst at payments consultancy Glenbrook Partners. “Long-term, Bitcoin will be a foundational technology.”

Here’s a closer look at Ripple and five other key players that are working out the implications of that foundational technology.

Bitcoin Shop Inc.

Founded: 2013

Number of Employees: 5

Headquarters: Arlington, Va.

CEO: Charles Allen

Bitcoin Shop has the distinction of being the first publicly traded U.S.-based company with “Bitcoin” in its name. The product of a so-called reverse merger with an existing company, Bitcoin Shop, whose shares trade over the counter under the ticker symbol BTCS, is best known for running an eponymous e-commerce marketplace that features 2 million items from 85 retailers.

The online market, which sells everything from kitchen mixers to office products to electronics and novelty items, operates in much the same way that Kayak searches for air fares on behalf of travelers. Look up a product and Bitcoin Shop will often aggregate listings for it from several different providers, with comparative prices quoted in Bitcoin. The site also takes the virtual currencies Litecoin and Dogecoin.

The market originally was developed by two NASA engineers in their spare time. But it doesn’t have much traffic and needs rationalization, says chief executive Charles Allen. “Our goal is to reduce the number of product offerings and increase the number of retailers, with the end goal of more products that sell,” Allen says.

Allen wants to add enticing product exclusives and build more features to enhance users’ shopping experience. For example, shoppers today can’t search for products by manufacturer. And Allen plans to add credit card acceptance so that customers don’t always have to use virtual currency.

More important, the marketplace upgrades are just one part of what Allen sees as a transformation of the company, which currently has five employees. “You’ll slowly see this evolve from Bitcoin Shop to BTCS,” he says.

Just what does that mean? Through ownership stakes in or partnerships with five cryptocurrency companies, the future BTCS will not only be involved in e-commerce, but also Bitcoin ATMs, transaction processing, virtual-currency financial services, digital wallets, and so-called Bitcoin “mining.” (Mining is the electricity-guzzling process of generating Bitcoins from computers using the complex algorithms upon which the virtual currency is based.) In other words, if virtual currency is involved, Bitcoin Shop/BTCS wants to be there.

“E-commerce is just one component of what we’re doing,” says Allen. “We want to create a universal ecosystem.”

The transformation has already started. The company has invested $114,000 in Bitcoin mining hardware from Hashmaster Tech LLC. The sale of new Bitcoins is expected to generate much of Bitcoin Shop’s revenues this year; in 2014’s third quarter, total revenues amounted to a mere $1,520 from e-commerce fees. Bitcoin Shop also is the lead investor in the online market’s processor, GoCoin LLC, and has minority investments in three other virtual-currency firms.

—Jim Daly

Bitnet Technologies Corp.

Founded: 2014

Number of Employees: 31

Headquarters: San Francisco

CEO: John McDonnell

Where do you go if you’re looking for new adventures in virtual currency and you just happen to have worked at CyberSource, Visa Inc.’s e-commerce services and security subsidiary? More than two dozen Visa/CyberSource veterans now hang their hats at Bitnet Technologies Corp. a Bitcoin merchant processor formed a year ago by John McDonnell, a former Visa senior vice president and head of business development at CyberSource, and Stephen Mc Namara, whose title is chief technology officer—a title he once held at CyberSource.

“The experience at CyberSource was, is, hugely influential in what we’re building at Bitnet,” says McDonnell.

McDonnell’s company aims to provide Bitcoin acceptance and processing services to large merchants. It tested its first transaction in October after just seven months of development. Bitnet’s head count in early December was just over 30. That included 23 people in Belfast, Northern Ireland, who work in engineering and product development. All but one of them once worked at—where else?—CyberSource.

In a way, however, Bitnet is the anti-CyberSource. As credit card transactions sprouted on the Internet in the 1990s, card issuers and merchants quickly realized e-commerce was highly vulnerable to fraud. CyberSource stepped into the void with services to thwart suspect transactions. Visa in 2010 acquired CyberSource, which had a gateway and e-commerce merchant portfolio, for $2 billion.

“Bitcoin was solving a lot of the issues we were fighting” at CyberSource, says McDonnell. “Cards were never intended to work on the Internet.”

For alumni of an established payments network, there’s a certain thrill to being free of old rules and protocols. There are no restrictions on cross-border acquiring with Bitcoin, and no more chargebacks once the transaction is confirmed. “All this stuff we built around the suite of services at CyberSource goes away,” McDonnell says. “It’s a whole different suite of services.”

One way Bitnet, which raised $14.5 million in a Series A funding round in October, plans to distinguish itself from competitors such as BitPay and Coinbase is by linking its cloud-based services “directly into large, complex retailer systems,” says McDonnell. Those systems include existing payment, fulfillment, and other behind-the-scenes operations.

“We understand the payment ecosystem,” McDonnell says. “We’re presenting [merchants] with a processing solution that just doesn’t exist yet in the market. The reason is we understand intimately those back-office systems.”

Meanwhile, McDonnell, a former corporate lawyer, is enjoying life as the chief executive of a startup in a rather risky market. “It beats the hell out of practicing securities law,” he says.

—Jim Daly

BitPay Inc.

Founded: 2011

Number of Employees: 85

Headquarters: Atlanta

CEO: Stephen Pair

BitPay has gotten itself in the news more than most Bitcoin-related companies. It was the title sponsor of the Bitcoin St. Petersburg Bowl Dec. 26, a post-season college football game. And, earlier last month, it led the headlines when Microsoft Corp. announced that consumers could use BitPay to exchange Bitcoin at current exchange rates to fund Microsoft accounts and buy content in Microsoft’s Windows Store or in stores selling items for Microsoft’s Xbox.

BitPay is a merchant acquirer that provides Bitcoin acceptance services for 50,000 merchants worldwide, half of them based in the U.S. Some 80% of BitPay’s clients are e-commerce merchants.

The company is growing fast—BitPay’s merchant base in 2014 more than tripled from 15,000 in 2013, and it opened two offices in Argentina and one in Amsterdam. BitPay has raised a total of $32.7 million in angel and investor funding. Its lead investor is U.K.-based Index Ventures, and another is British entrepreneur Sir Richard Branson, according to its Web site.

As a pure-play acquirer that doesn’t deal directly with consumers, BitPay hopes to steer clear of as many government regulations as possible, both on the federal and potentially now on the state level, that could crimp consumer-facing virtual-currency providers. “We only do merchant acceptance, we only process payments,” says vice president of marketing Stephanie Wargo. Wargo was employee number 15 when she was hired in November 2013, but, 13 months later, BitPay’s head count had already grown to 85.

BitPay signs merchants in three ways. It has a direct sales force for large merchants, including TigerDirect.com. It also has a referral agreement with the big acquirer Global Payments Inc. to serve Global’s merchants that want a Bitcoin option in addition to traditional card acceptance. And BitPay also has referral agreements with what Wargo calls “mini-ISOs” to sign small merchants. “We’ll definitely be expanding all of those sales channels” in 2015, says Wargo.

BitPay, which has agreements with several third-party Bitcoin exchanges, can settle with merchants in Bitcoin or in fiat currency, depending on the merchant’s preference. BitPay provides basic merchant processing at no charge, but generates revenues through various premium products and services, with more on the way in 2015.

Five years from now, virtual-currency payments will be a mainstream service just as PayPal has evolved from an unfamiliar alternative more than a decade ago to wide acceptance today, Wargo predicts. “Bitcoin is going to be that next payment option,” she says.

—Jim Daly

Coinbase

Founded: 2012

Number of employees: 100

Headquarters: San Francisco

CEO: Brian Armstrong

Who’s the behemoth of Bitcoin? Many would argue it’s Coinbase, and they seem to have a case. The 2-year-old company counts 2 million of its Bitcoin wallets in use and more than 37,000 merchants as users of the service. Plus, Coinbase is part of 7,000 developer apps.

Digital Transactions News reported in December that approximately 75,000 merchants worldwide accepted the digital currency, indicating Coinbase is serving nearly half of them. “Merchant adoption increased dramatically in 2014 with businesses like Overstock.com, Dell, Dish, and Expedia all starting to accept Bitcoin via Coinbase’s merchant tools, and we believe it will continue growing in a major way over the next five years,” says a Coinbase spokesperson.

Indeed, Coinbase said in October that its processing services now are available in 18 European nations. Consumers in the region can link their bank accounts via the Single Euro Payments Area initiative to buy and sell Bitcoins. In December, Coinbase updated its wallet to enable consumers in some U.S. states to store U.S. dollar balances on Coinbase. This means Coinbase can process Bitcoin purchases on demand using funds stored in the USD Wallet, as it’s called.

Coinbase’s efforts to make Bitcoins easier to use include the ability to pay a tip to Web-site owners. Set at the default amount of 300 bits, or about 10 cents, the tips can be used reward bloggers, podcasters, and other online content providers.

“Moving forward, merchant adoption will continue to expand internationally with new consumers and merchants signing up to buy, sell, and use Bitcoin,” the Coinbase spokesperson says. “Additionally, merchants will begin passing some of the savings associated with receiving payments in Bitcoin back to their customers. Instead of a merchant paying upwards of 5% per transaction in fees associated with accepting credit cards (wrapped up in bank interchange fees, fraud-prevention fees, and chargebacks), merchants pay only a flat 1% fee to accept Bitcoin payments and have no risk associated with chargebacks and traditional forms of card fraud.”

—Kevin Woodward

GoCoin

Founded: 2013

Number of employees: 10

Headquarters: Santa Monica, Calif.

CEO: Steve Beauregard

GoCoin is a payments processor that enables merchants to accept multiple virtual currencies, including Bitcoin, Litecoin, and Dogecoin. Each transaction carries a 1% fee, much lower than traditional credit and debit card transactions.

“GoCoin is the first payment-processing platform designed specifically to handle both Bitcoin and emerging altcoins at checkout,” says Steve Beauregard, GoCoin chief executive. GoCoin is the virtual-currency processor for Bitcoin Shop Inc. an e-commerce site that only accepts Bitcoin, Litecoin, and Dogecoin as payment.

GoCoin can settle merchant accounts in different currencies, including U.S. dollars via the automated clearing house, and virtual currencies on a daily basis. It can pay out in euros, British pounds, and in U.S. dollars via a wire transfer on a weekly basis. Cryptocurrency-accepting merchants using GoGoin must complete Know Your Customer documentation to receive funds in U.S. dollars or other fiat currencies.

GoCoin offers integration with several e-commerce carts, including WooCommerce, Magento, VirtueMart, UberCart, ZenCart, OpenCart, Prestashop, OSCommerce, and Shopify, an e-commerce platform with more than 120,000 retailers, including General Electric, Tesla Motors, and GitHub.

Taking a cue from other enterprises, GoCoin operates a referral program for online affiliates. The program rewards participants for each merchant successfully added as a GoCoin business.

The company also has a unique approach to funding. In addition to institutional and individual investors, GoCoin solicits investment via Crowdfunder.com, an online service that enables individuals to invest in ventures. As of early December, GoCoin had raised $1.545 million of its $2 million goal.

Digital-currency acceptance will be the norm in five years, Beauregard says, ”as opposed to at present where it is the rare exception.”

And, he predicts, it’s likely that consumers and merchant will use multiple digital currencies. “I also firmly believe there will be multiple coins that will have gained acceptance and merchants will also begin to accept settlement in coins as opposed to wire transfers from bank account to bank account,” he says.

—Kevin Woodward

Ripple Labs Inc.

Founded: 2012

Number of employees: 84

Headquarters: San Francisco

CEO: Chris Larsen

It was inevitable that someone would try to come up with ways to out-Bitcoin Bitcoin. Enter Ripple Labs, the developer of XRP, a cryptocurrency native to Ripple’s network. An open-source protocol, XRP enables free and instant payments to merchants, consumers, and software developers with no chargebacks and in any currency.

XRP enables different currency types to be exchanged outside of traditional bank-settlement technology. Banks, money transmitters, and clearing houses can use Ripple as a settlement technology and alternative to correspondent banking to facilitate straight-through processing with no reserve funding required. For example, a consumer with a branded card can only use that card at merchants that accept it. But participants on the Ripple network can hold balances in one currency and send payments in another.

Ripple says the system enables payments that are less expensive than conventional payments because Ripple is not owned by anyone, and the payments made on it are settled within seconds. In effect, Ripple is a shared public database that tracks accounts and balances. As with Bitcoin and the public blockchain, anyone can view the ledger and see a record of all activity on the Ripple network, a spokesman says.

But unlike Bitcoin, XRP does not rely on mining to create coins. Instead, XRP uses a distribution method that requires each participant to have an account. It also awards XRP to developers who find bugs and help make improvements to the system. Ripple also plans to offer merchants XRP rebates based on the retail transaction volume they bring to the network.

Ripple says its system, at bottom, is about providing choice. “We believe people want to transact having a greater choice in unit of value, for example, buying with Bitcoin, dollars, loyalty points, and more,” says Monica Long, director of communications. “We believe that merchants and person-to-person recipients should have that same choice in how they receive payment. Ripple is designed to enable this choice on both ends of a transaction.”

—Kevin Woodward

The Overstock Experience

(After nearly one year of Bitcoin acceptance)

The top 10 product categories

1. Appliances

2. Living-room furniture