Deep in the unregulated underbelly of the Internet, bitcoin
is the crypto-currency of the realm, making as many headlines for its
volatile price as it has for its popularity with criminals seeking
anonymity.
These are reasons enough to keep most people away. But bitcoin
keeps popping up in more places as a way to pay for legal, everyday
things. So I spent a week using the virtual currency and my experience
surprised me: It was neither anonymous nor shadowy.
Though
my hunt for places to spend bitcoin did turn up a questionable massage
parlor, it didn't require venturing into fishy corners of the Internet. I
used bitcoin to buy cupcakes and sushi at local shops, and I got a
Grumpy Cat sweatshirt at Overstock.com.
Bitcoin can be used for more everyday purchases, such as cupcakes.
Geoffrey Fowler/The Wall Street Journal
Bitcoin isn't ready to replace credit
cards or PayPal. It lacks wide acceptance, consumer protections and
stability. The currency is in crisis right now,
after hacking attacks disabled two of the biggest exchanges, making
bitcoin lose a third of its value. During the course of a week, my own
bitcoin lost as much as 7% of its value.
But
that isn't stopping me from keeping a small wallet of the first major
Internet currency. I'm no speculator, I'm not investing my savings in
bitcoin, or recommending that anyone does that. I'm interested in what
it might enable—a "tip jar" for online art, or small daily donations to
charity. And if you're intrigued, too, this column will hopefully help
you keep from losing your shirt.
The good news is you don't have to
put much money at risk to try it out. I didn't even buy an entire
"coin"—just 0.25 of one, or about $160. I signed up for a virtual
wallet, which promises to safeguard the string of code that is your
money, and exchanges dollars for bitcoin (and vice versa). I recommend
Coinbase, whose wallet connects to your regular bank account and charges
a small fee, about 1%, with each trade.
Are
these people trustworthy? Coinbase is backed by some big names in
Silicon Valley, but has nothing like the government-backed guarantees of
using dollars in a regular bank. In the past 15 months, Coinbase says
it has set up nearly one million consumer wallets.
What
surprised me most is how Coinbase strips some anonymity out of the
currency. To buy bitcoin, it asked me for my bank account information,
my credit-card numbers, even my bank website login details. The company
doesn't retain all that info but it is used to speed up the verification
process, which can normally take four days.
The
point of gathering all this information, says CEO Brian Armstrong, is
to prevent "shenanigans," so the traditional banks will see Coinbase as
legitimate.
Coinbase has done a good job
of simplifying bitcoin use. To pay for sushi at a local shop, I used
the Coinbase app on my Android phone to scan the QR code presented by my
server. (Apple hasn't yet approved the Coinbase app for iPhone, but you can make payments via the Web.)
Once
I confirmed my sushi payment, the money transferred instantly. For
consumers, bitcoin's speed can be a dual-edged sword: If something goes
wrong, there's no third party to intercede and get your money back. And
returns can be tricky on a currency with a wildly fluctuating value.
(Fortunately, I had no complaints about my sushi.)
Making
a purchase online works much the same. At the Overstock.com checkout
page, I chose to pay by bitcoin, and then scanned an on-screen code with
my phone.
So why bother using bitcoin?
Bitcoin doesn't really solve mainstream consumer problems like speed and
convenience, says Mark T. Williams, who teaches finance at Boston
University and is a bitcoin skeptic. "It solves a problem if you want to
send stuff secretly."
Though Coinbase
and other wallets collect information about you, you can still try to
make transfers or payments anonymous. If someone gives you bitcoin, you
can set up a Coinbase wallet without entering many personal
details—though you'll need to verify yourself if you want to turn your
bitcoin back into dollars.
Getting
merchants on board will be a slog. Some 3,000 businesses around the
world accept bitcoin for payment, according to Coinmap.org. There are
more than 60 in the San Francisco Bay Area where I live, but I still
struggled to find places worth spending my bitcoin. When I did, paying
with bitcoin was usually speedy, but certainly not faster than using a
credit card or cash.
Overstock is
planning to offer a financial incentive to paying with bitcoin. Since
bitcoin payments save the retailer credit-card fees, Overstock will give
bitcoin customers 1% back on their purchases (in store credit).
So
far, the killer app for bitcoin may be international transfers, a
process made costly and slow by traditional banks and services like
PayPal. I tried sending $10 worth of bitcoin to my friend Kevin in Hong
Kong. In minutes, he was up on Coinbase and zapping the money back to
me. I sent it over the Pacific again, impressed at our ability to play
ping pong with a financial process that normally takes days.
But
when Kevin tried to spend his bitcoin in Hong Kong, opportunities were
slim. He found a massage parlor that accepts it, but his wife wasn't
impressed with his proposal to sample its services. Eventually Kevin
found a florist (wife-approved), but I hadn't sent him enough to buy a
bouquet. To buy more bitcoin, a legitimate-seeming Hong Kong wallet
company asked for his passport, proof of address—and more time.
Someday,
all of this might be easier. Taking a vacation with bitcoin might
provide a way to avoid international currency and credit card fees. But
that day isn't here yet.
"Some day"—I
found myself thinking that a lot while using Bitcoin. It may be a
currency of the future, but it's still looking for a reason to be useful
in the present.
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