Personal Finance

How Real People Can Actually Use Bitcoins

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Bitcoin enthusiasts gathered at a trade show in New York City last week to show off their latest digital currency creations. Heading the discussion: Efforts to make sure bitcoins are accepted and available as broadly as possible. To that end, word leaked that a bitcoin-based debit card may soon make its way to the U.S. Meanwhile, not only do a handful of New York bars accept bitcoins for booze, a slightly larger number encourage patrons to tip bar staff using digital currency.

So when will you — the non-early adopter of technology — be forced to confront Bitcoin in your life? And what should you do about it?

Spoiler alert!  The answers — A: Not very soon; and B: Cheer because it will one day enable nearly fee-free international money transfers and micropayments that might save artists and writers, but please don’t invest in it.

Talk of Bitcoin crescendoed last week, even as the Wall Street Journal described dogged efforts by a Hong Kong-based startup named Cryptex to merge Bitcoin value and the convenience of plastic-based debit cards. It’s easy to see how integrating Bitcoin into the way Americans already spend would be the easiest way to increase adoption rates.  There are numerous regulatory hurdles to clear, however, and putting Bitcoin on traditional plastic in some ways defeats the advantages of Bitcoin in the first place (there will be traditional transaction fees).

Why Bitcoin Is Such a Big Deal

To refresh: Bitcoin is the first digital, nation-state independent currency that has enjoyed any kind of widespread adoption. Widespread is, of course, in the eye of the beholder. It’s not easy to calculate the true number of Bitcoin users, but one reasonable estimator guesses the number is around 1 million worldwide.

Bitcoin is cool because — it’s cool. And because Bitcoins can be acquired and spent without the backing of a government entity or the involvement of banks, these transactions are incredibly cheap. Coffee shops that accept Bitcoins save themselves from 2 – 3% credit card transaction fees, for example.

Of course, Bitcoin has a problem: Where can users find such coffee shops? Despite the constant churn of news stories announcing Bitcoin acceptance, you still have to work pretty hard to spend the things.  A Forbes reporter demonstrated this last year when she tried to live for a week on Bitcoins.

However, the number is certainly growing. Where can you spend Bitcoins?

  • At those aforementioned fee-fight coffee shops, though many are clustered around Silicon Valley right now
  • At the occasional pub, such as Old Man Hustle in New York’s Lower East Side
  • At edgy websites.  Overstock.com is among the largest, as is TigerDirect.com
  • At some native digital services, like game site Zynga
  • All manner of online-only sites, such as gambling sites, both legal and perhaps a little less legal
  • And, as we all know, sites that sell illegal items, such as the now defunct Silk Road drug sales site

Also, it should be noted, you can buy gift certificates with Bitcoins, which effectively allows holders to spend their Bitcoins at big sites like Amazon.

The Bigger Picture for Bitcoin

Don’t get hung up on the connection between crime and bitcoins. To shake you of that stereotype, look up the early history of PayPal. Every new form of payment is exploited by criminals looking to circumvent regulators. That has nothing to do with Bitcoin as a concept.

As a concept, here are some reasons why you should be cheering on Bitcoin:

  • It makes high-fee transactions, such as moving money internationally, dramatically cheaper. It really helps with a frictionless economy.
  • It’s cheaper for merchants, and that means cheaper for consumers, who avoid 2-3% merchant processing fees with every purchase.
  • Bitcoins really could enable micropayments — small, quick payments of say half a penny or so. Micropayments (and the small transaction fee that would have to accompany them) have long been promised as the savior of good content online.  Wouldn’t you pay half a penny, if it were easy, to read a great feature story?
  • Bitcoin is a great way for regular citizens to deal with a currency crisis, because it allows them to move money quickly and easily outside a country. This has already occurred in some form: Spaniards reportedly used Bitcoins to keep their money safe during the Cyprus crisis in early 2013.

Sadly, Bitcoin has already run into so much trouble — Silk Road being atop the list, wild value fluctuations due to speculators a close second — that it’s easy to imagine governments and banking titans will eventually come down hard on the concept and even regulate it out of existence. For that reason, it would be foolish for anyone but the most seasoned risk-taker to play Bitcoin as an investment. You probably won’t want to buy any more bitcoins that you might use in the next few weeks or so to avoid the potential of losing it all in a catastrophic event, such as the bankruptcy that hit Mt. Gox, once the largest Bitcoin exchange, in March.

Events like these recall the early, heady days of Napster, which took the world by storm and invented a new way to consume music, but which was eventually consumed itself by criminal activity.

But it’s only smart to toy with Bitcoins and make sure you grasp the concepts. And it’s always a great idea to tip your bartenders (and doing it in Bitcoins, they will get to keep more of the tip!). Because even if Bitcoin eventually goes down in flames, like Napster, something similar will replace it. The concept is just too solid. We can only hope it isn’t replaced by something like iTunes, and doesn’t fall under control of a huge international corporation.

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Image: Wavebreakmedia Ltd

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