Okay, Seriously: What The Heck Is Bitcoin, And Why Do So Many People Prefer It To Dollars And Cents?
LAS VEGAS—It’s easy, oh so easy, to hate Bitcoin.
Some of the virtual currency’s more public uses have been to buy drugs or procure hit men. The Winklevoss twins, having graduated from claiming to have invented Facebook, love the virtual currency so much that as of November they bought up 1 percent of all “BTC” in circulation. It’s spawned a host of other made-up currencies, some a lot loopier (“Dogecoin” and “Coinye West,” anyone?) than others.
And yet: Paying for goods and services is not one of those practices that we humans can claim to have perfected. And it’s not as if we’ve never trafficked in alternative currencies before. Microsoft Points and Facebook Credits didn’t take off, but Amazon gift cards function as an alternative currency, albeit with a fixed 1:1 exchange rate with dollars. Frequent-flyer miles—redeemable not just for air travel but a variety of gifts—represent yet another way besides dollars through which you can pay and be paid.
So set aside the libertarian utopianism around Bitcoin. Why is this “crypto currency”—“mined” by solving complex equations on increasingly specialized computers, with transactions confirmed through peer-to-peer math—good for you, the customer? And why should you be wary?
More efficient transactions—with a catch. Your credit card may look free to you, but merchants pay a small fee to accept it, historically around 2 to 4 percent, that invisibly pads out your bill. That’s much less of a factor with Bitcoin transactions: One small retailer I talked to at an event last night (Silver Spring, Md.-based BitcoinShop.US) pays a $30/month flat fee to have BitPay process those purchases.
Why? There’s no short-term interest-fee loan involved. On this level, Bitcoins operate like cash—the money goes directly from you to the merchant. That, in turn, means that the transaction doesn’t come with a credit card’s traditional guarantees of security. You can ask nicely for your money back, but by default there’s no third party to step in on your behalf and reverse the transaction.
Credit-card payments have changed a lot in recent years, however—think of how phone- and tablet-based card readers like Square’s have broadened the outdoors utility of plastic. Traditional processing services are getting a lot more competition, which could steadily narrow the gap between credit cards and Bitcoin.
And the inexperience of some Bitcoin processors can inflict different costs. At the tech-policy site Techdirt.com, founder Mike Masnick elected to take Bitcoin as payment starting in November, using Bitpay to handle those transactions. “Bitpay’s customer service was dreadful,” he wrote, citing issues getting transactions over $100 to go through.
An easier way to send money across borders. Because Bitcoin isn’t run by a central bank, it can cross international boundaries much more easily and quickly. That’s an easy thing to overlook in the U.S., where you could bring suitcases full of cash through customs as long as you fill out a form for sums over $10,000.
Central banks aren’t the only obstacle Bitcoin can route around. WordPress.com (disclosure: my own blog host) began accepting payments in BTC in late 2012 because of all the countries where traditional processing services won’t take locals’ money.