Bitcoin adopters in Ohio have been some of the most vocal about how state laws need to evolve to encourage the use of digital currency, but the Ohio government seems to want that change to come from the courts rather than the legislature.

This is an especially hot topic in Cleveland, where a handful of merchants along Lee Road in the trendy Cleveland Heights district have begun accepting the cryptocurrency, creating the first U.S. Bitcoin Boulevard.

While Sweetie Fry, a restaurant serving the strange combination of ice cream and French fries, and Revive, an eco-friendly boutique for fair trade apparel and accessories, haven't had a problem selling items for bitcoin, other merchants on Lee Road, including The Wine Spot, have had to backtrack on accepting bitcoin for its alcoholic beverages (it still accepts bitcoin for non-alcoholic items, such as cheese plates and corkscrews).

The Ohio Department of Liquor Control initially ruled that bitcoin could not be accepted for liquor sales but has since changed to a less aggressive "no position" ruling. The Alcohol and Tobacco Tax and Trade Bureau (TTB) has ruled that as long as the agency receives taxes, the use of bitcoin is a private business matter. And the Ohio Department of Public Safety has also taken no position on merchants accepting bitcoin for liquor sales.

After an inquiry from a Cleveland Plain Dealer reporter into the topic, the Public Safety Department said, "In keeping with guidance from the IRS that bitcoins are a form of 'property' and not 'currency' for tax purposes, the Ohio Investigative Unit may investigate the use of bitcoins as monetary payment for alcohol."

So merchants could accept Bitcoin for alcohol purchases, but the Investigative Unit could decide to issue a citation to the bar owner because of its decision. The bar owner could then challenge the citation in court. "Ultimately the Ohio Liquor Control Commission, and possibly an Ohio court, will determine whether the use was permissible," said Eric Wolf, who is in charge of the Investigative Unit, in the response.

Much of the progress Bitcoin has made with Ohio merchants and regulators has been due to the efforts of Nikhil Chand, CEO of CoinNEO, a Bitcoin consulting startup that is active in Cleveland.

Chand has continued to engage with Ohio state government agencies on the topic.

"We read [the ODPS'] letter to be a challenge to small-business owners to break the law in order to move this forward," said Chand. "We want a proactive investigation though…instead of having these merchants risk their businesses and livelihood."

He has told merchants on Lee Road to not accept bitcoin for alcohol and poke at Ohio regulators until they take a formal position.

The Ohio Attorney General's office referred inquiries from PaymentsSource to the Ohio Liquor Control Commission, a part of the Department of Commerce, which referred inquiries to the Department of Public Safety, which did not return several calls and emails. During each of those calls, agency representatives seemed unfamiliar with Bitcoin.

Chand has had similar experiences but he's hopeful that the state of Ohio will look to more proactive states, such as California and Texas, as a model. Ohio could rule that Bitcoin is money, similar to California's stance. The state could also add a clause to liquor laws to address digital currency, or completely rework its laws.

Ohio's decision is impeding on merchants' "ability to do business and compete. It gets in the way of creative entrepreneurship," Chand said.

Chand insists the rulings are anti-small business. "We would have easily doubled revenues on Lee Road in Bitcoin sales alone had we allowed alcohol sales," he said.

And not only in Cleveland, but also in Columbus and Cincinnati, bars and breweries are showing interest in accepting Bitcoin and moving the conversation with regulators forward. Chand is currently trying to get a petition together, and building a working group of small-business owners and legal counsel to engage the Ohio state Congress.

The six merchants along Lee Road accept Bitcoin through BitPay, a Bitcoin merchant services provider that offers a free package for smaller merchants who don't need advanced features such as Quickbooks accounting software integration.

"Credit cards kill me; I see what I get charged [for accepting credit cards] out of net proceeds every month…and you could make a house payment on it," said Adam Fleischer, owner of The Wine Spot. "If I'm going to survive and reinvest my money back into the business and hire people and help the local economy…I need to shift some of my focus off credit cards."

Fleischer pays between 2.75% and 4% on credit card transactions.

And the other businesses in the area—about 95% of which are independently-owned—are likely feeling the same need for alternative payment methods, especially with more commerce moving online and big box retailers squeezing margins.

In part because of the attention focused on the benefits of cryptocurrency, such as near real-time transactions without high fees, the payments industry has been eyeing other ways to cut merchant costs.

Both legacy players and startups, including WingCash, are offering free, immediate and guaranteed cash-like transactions digitally when both the payer and payee are part of the company's network. And while the big tech companies focus on mobile wallets, traditional payment methods are getting a second wind with startups building out digital systems for transacting with checks or over automated clearinghouse rails.  

Most of the merchants on Bitcoin Boulevard accept one or two Bitcoin transactions per week.

But the press surrounding the introduction of Bitcoin Boulevard has been tremendous. The Wine Spot has been featured on National Public Radio (NPR), The Washington Post, Entrepreneur Magazine, a Korean television station and Fusion Television.

"That sort of exposure as a result of accepting a new technology was, to me, a no-brainer," Fleischer said, "We’d never be able to pay for the advertising to reach all those people that national coverage does."

The wine seller has seen an increase in tourists coming to Cleveland because they've heard about Bitcoin Boulevard. Even if these tourists are not using the digital currency, more of them are coming in to shop with traditional payment methods, Fleischer said.

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