When it comes to buying Reeds jewelry with digital currency, diamonds are in demand.

Since last month when Wilmington- based Reeds Jewelers started accepting Bitcoin, the retailer has said the most popular items purchased with it have been diamond jewelry necklaces.

The first transaction was actually within a store, said Mitch Cahn, Reeds’ director of marketing and business development. The customer found out about the Bitcoin option online but made the transaction in a store.

“We would have thought the opposite. It was wonderful,” Cahn said.

In early June, Reeds Jewelers joined the list of retailers willing to let customers pay with Bitcoin.

The company, a nationwide jewelry store chain, recently said it would accept Bitcoin for payment at its 64 retail locations and online at www.Reeds.com.

Bitcoin is a digital currency that is based on mathematical formulas, not a country’s central bank.

Cahn said the company’s primary motivation for the move is staying on top of new technology and improving the options available to customers.  

“Traditionally the jewelry industry is very antiquated. In 1998, we launched Reeds.com, which was very progressive way back then. We like to be right there at the top,” he said.

“We have always been a strong online player. When Overstock and other top-tier companies added Bitcoin, we decided to make the jump.”

Cahn also said that the Bitcoin owner is a customer demographic that Reeds wants to attract.

“There are a lot of people out there who have Bitcoin,” he said.

“On the flip side of that, these Bitcoins consumers have a lot of Bitcoin but do not have a way to convert it to something more stable like gold and diamonds.” 

Cahn also thinks the nature of Bitcoin will lead to larger than average sales.

“We think the consumer that owns Bitcoin will [buy] a larger ticket purchase,” he said.

Reeds partnered with Coinbase, a Bitcoin platform with more than 1.3 million consumer wallets, 32,000 merchants and 6,000 API applications to accept the Bitcoin transactions, according to a press release.

Customers must have a Bitcoin wallet to make the purchases. Reeds will accept Bitcoin payments at the retail locations, which include local stores at Independence Mall and Mayfaire Town Center, using digital tablets.

The mechanics of accepting Bitcoin is similar to accepting other payment types, Cahn said.

“We are looking [at it] like any other processor,” he said, citing such payment methods as Visa, Mastercard, PayPal or Amazon, with Coinbase as a middleman. 

“You want to transfer $100 from my Bitcoin wallet to Reeds Jewelers, and Coinbase sends you a code,” Cahn said, describing the process. “You have 20 seconds to enter the code, and then the transaction completes.”

He said Coinbase verifies three things: the purchaser’s identity, available funds and payment to Reeds.

The consumer buys items at the current exchange rate for Bitcoin (BTC) to dollar. 

Reeds receives the dollar amount from the purchases as U.S. currency, not Bitcoin. 

“We are not holding onto Bitcoin as a commodity,” Cahn said. “We are looking at it like any other retail transaction.”

Bitcoin’s value is very volatile, and during the last year, BTC has ranged from less than $100 to more than $1,000 per BTC. 

As of Reeds’ announcement June 10, the exchange rate was 1 BTC to $657, and since then it has fallen to about $560 as of June 26.

For Reeds, the price fluctuation has not been an issue because the items are still priced and sold in U.S. dollars and Coinbase immediately converts the Bitcoin to U.S. dollars.  

“We are not worried about the fluctuation,” Cahn said.

Bitcoin rates fluctuate based on the changes in the market, and in the short time since Reeds started accepting Bitcoin, it has been discovered that one mining pool has enough processing power to control over 50 percent of the market.  
 
According to multiple online reports, the Ghash.io mining pool has amassed enough users and computers in its pool (more than 180,000) to control 51 percent of the Bitcoin mining at any one time.

The reason this is an issue for Bitcoin is that mining is the processes of solving incredibly difficult mathematical formulas with a computer. The computer that solves the problem receives 25 Bitcoin (currently worth $14,000) each time a new answer is discovered. Over time, the Bitcoin system automatically increases the difficulty, so it becomes hard to find each additional answer.

In the beginning the creation of Bitcoin (mining) was done with personal computers. Today processing is done, but online mining pools such as Ghash.io have started to pool resources to solve then split the Bitcoin that result.  

When one of these pools controls more than 50 percent of the available resources, they also are able to impact the accuracy of validating Bitcoin transactions because of how the decentralized system works.

Another development recently has been the auction of Bitcoin seized by the U.S. government from the online marketplace Silk Road. 
 
The sale, held on June 27, auctioned off 29,656 of the 144,000 Bitcoin seized by federal marshals. The sale attracted investors and private individuals who were interested in purchasing large amounts of Bitcoins in one transaction.

As for the reach of Reeds’ Bitcoin announcement, Cahn said the retailer rarely puts out press releases, but this item made the rounds.

“The PR around it was pretty phenomenal,” Chan said. “It was picked up by a lot of the blogs about Bitcoin. One hundred and fifty media outlets picked it up including internationally in China and Russia – on the social side, a ton of retweets.”

He said that even though the news made it worldwide, Reeds does not ship directly overseas, so there have not been any sales outside of the U.S.

As for himself, Cahn does not own any Bitcoin.

“Do I wish I would have bought it when it was worth three cents? Yes,” he said.