Wall Street Journal - How to use bitcoin to make everyday purchases
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.
Bitcoin Experiment in Real Life
What to know about the virtual currency
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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