Chelmsford Tea & Gifts is located in Wichita, Kan. The company was founded in 2000 to offer “scores of tea varieties not easily found in retail stores in one location.”
The timing of the announcement was unfortunate. Last week trading was halted on three crypto currency exchanges after it was revealed hackers stole 4,474 Bitcoins from the Silk Road 2.0 website. Silk Road is a drug-selling black market whose technical staff blamed the loss on a “transaction malleability” bug in the Bitcoin software. The loss was valued at $2.6 million, according to an article in Forbes.
Bitcoin developer Greg Maxell responded to concerns about Bitcoin security in a Q&A with Coin Desk News. He said coding done by the exchange is to blame. He admitted there is a known bug in early versions of the Bitcoin software, first identified in 2011. The bug has been fixed and old versions previously installed on servers are gradually being replaced but “this wouldn’t make the top ten list of dangers in the Bitcoin technology.”
Teacoin uses a different software protocol to create its digital coins, according to Teacoin spokesperson Mr. Brew. He said that “Teacoin uses a modified version of the Zetacoin protocol to create Teacoins. The Teacoin client should be safe since it relies on the v0.8.99.7 Bitcoin client.”
“Keeping your coins in an exchange or other online wallet services is always a risk. You should always keep your coins in your own encrypted wallet to keep them safe,” said Mr. Brew, adding, “We do not condone the practices of Silk Road 2.0.”
“Teacoin was developed to target online tea and coffee shops,” according to Mr. Brew. “The goal is to spread word about the benefits of tea and to introduce cryptocurrency to the tea world. The website launched with a Twitter and Facebook presence.
“We wanted the growth of Teacoin to be organic and we wanted the Teacoin to spread via social media and word of mouth. Therefore no tea shops were approached by us. However, we did put out bounties for the first tea shops to accept Teacoin,” writes Mr. Brew. He said that Bitcoins become rarer every day. “I believe Bitcoin will get past this issue and will reach a value of $3,000 to $5,000 USD by the end of the year,” said Mr. Brew.
Teacoin was listed with a market cap of 235.77 Bitcoins. Bitcoins are a more established crypto currency founded in January 2009. Startup funding was $6.7 million. Its innovative open-source software enables instant worldwide peer-to-peer transactions for little or no processing fees and no risk of chargebacks while being immune to seizure or confiscation. As an open-source software it means all users have access to all of the source code all of the time.
Teacoins currently trade at .00377 of a $1 USD. Owners of the currency expect to mint a pool containing 39,295,081 coins. The limited number establishes the scarcity of the coins which helps insure they will trade at a stable price. Teacoin intends to “mine” additional coins in the future to keep pace with inflation.
As with all launches Teacoin has little initial value. The success of the currency depends on its ability to convince consumers that its innovative features are to their advantage. The primary benefit is that digital coins do not incur significant banking, fees, currency exchange fees, credit card fees and other charges collectively known as “friction.” Using a dollar bill to buy a dollar’s worth of tea is frictionless. Whereas using a credit card for the same purchase can add 10% or more to the transaction. These charges are largely invisible to buyers, but vendors complain loudly about these costs.
Bitcoin has a current market valuation of nearly $1 billion but this is highly volatile. The valuation spiked in December then plummeted on regulatory concerns voiced by several governments. In January Bitcoins were listed at more than $900.
The incident involving Silk Road 2.0 has since led to questions about Bitcoin’s ability to prevent fraud. Last week the value of the currency fell 10% percent in a single day. TechCrunch writer Alex Wilhelm noted the “price of Bitcoin on Mt.Gox has cratered, again. It now rests just above $110. That’s down from around $260 the day before. Users are betting more heavily now that their Bitcoin on the exchange is never coming back.” The weighted value of Bitcoins based on multiple exchanges was $621.1 Feb. 23. Mt.Gox was excluded from the calculation as of Feb. 10.
Mt.Gox is a Tokyo, Japan-based firm that claims to be the largest of several exchanges trading Bitcoins. Mt.Gox suspended trading in mid-February due to technical difficulties leading to security concerns.
In a Feb. 17 open letter to its customers Mt.Gox announced it has a workaround that will use a unique identifier created by Blockchain to show whether transactions have been modified or not. This will prevent any fraudulent use of the malleability bug and “protect the assets of our customers.”
Mt.Gox added a new login system that emails customers accessing the account and advised customers to use two-step authorization.
Withdrawals will be permitted at “a moderate pace” and with new daily and monthly limits in place “to prevent any problems with the new system and to take into account current market conditions,” according to Mt.Gox.
Mishaps like the above will either strengthen merchant and consumer confidence in the ability of Bitcoin and similar currencies to address security issues or lingering uncertainty will sink them.