Economics / Technology

Is Bitcoin Useful to Consumers?

Image from wired.com

 

Bitcoin made headlines again on October 31st as the Chicago Mercantile Exchange, the largest futures and options market in the world, announced that it would soon be offering Bitcoin futures, allowing investors to bet on the future price of the currency. This came a month after the digital currency broke the $5,000 per bitcoin barrier and has continued climbing to over $6,500 per bitcoin as of November 1st. This is an incredible increase from starting the year at $1,000 per coin, and at this point it is unclear whether this is a bubble, the currency is finally breaking into the mainstream, or a little of both. Aside from a way for tech-savvy investors to make millions, a true test of Bitcoin as a replacement or supplement to traditional fiat currencies such as Dollars or Euros will be whether or not the average consumer will be able to find any use for them.

 

To understand whether or not Bitcoin can be useful to consumers, first one must understand the intrinsic values that set Bitcoin apart from other currencies. Every transaction is verified and recorded on a public ledger, called the blockchain, with participants hidden behind anonymous bitcoin wallet ID numbers. End users can use bitcoin wallets, software that gives a user a wallet ID and tallies their holdings based off of transactions they participated in. From there, users can send and receive parts of or entire bitcoins securely and anonymously using the encryption built into the Bitcoin platform. (1) In the long term, the implications of this system are a currency that is independent from government meddling, as well as being completely anonymous in a world where it seems like every week a new batch of millions of credit card details is stolen. (2) This video, from bitcoinproperly.org, goes more in depth into what the blockchain that drives Bitcoin is, how it works, and what the practical benefits are. https://www.youtube.com/watch?v=oSP-taqLWPQ

 

Wide reaching positive effects have never been a reliable driver for change, especially when it involves tradeoffs. For example, a significant part of the US still smokes cigarettes despite many cheaper and healthier options being available. In the case of Bitcoin, new users are stepping into a volatile market where, next week, their stash of bitcoins could be worth hundreds more or less than they were a week before. Your bitcoin wallet is the only connection you have to your funds; if you lose the passcode for it then your money is effectively gone, unlike actual banks that are happy to hold on to your money. Bitcoin transactions are only verified onto the blockchain as fast as the network can write new blocks, which means transactions are not confirmed for 10 minutes to up to an hour or more on busy days. (3) This is a result of Bitcoin’s coding, which dictates how often new blocks of transactions are confirmed on the public ledger. Due to Bitcoin’s decentralized system, this can only change once a majority of the computers in the Bitcoin network “vote” to change this by running new coding. Until that happens, this remains a massive barrier to the ability for a consumer to go trade 1/2000th of a bitcoin for a cup of coffee.

 

For online shoppers, the outlook on the usefulness of Bitcoin is much brighter. Many retailers now accept bitcoin as a payment option, and for those that do not, there is often a workaround in place that allows it. Hardware retailers have been quicker than most to jump on the Bitcoin trend, with Dell and Microsoft both accepting bitcoin as a payment option. Newegg, a consumer computer parts supplier, also has begun accepting bitcoin as well. Middleman services such as Purse.io even allow for users to buy from Amazon at a discount using bitcoin, by connecting their orders with people who want to trade Amazon gift cards for bitcoin. Gift card suppliers also serve as a way to connect bitcoin to the outside world, with companies such as Egifter and Gyft allowing users to buy gift cards for common retailers such as Starbucks or the Gap with bitcoin. With the ultimate goal being a universal and secure currency, an obvious use for Bitcoin would be in travel so people would not have to deal with currency exchanges. This is becoming less of a pipe dream as travel companies, such as Expedia, have started to accept bitcoin to book hotels. (4)

 

Everyday usability is still an elusive goal for Bitcoin, and for the foreseeable future, the average consumer will be better off using traditional currencies for purchases. However, as Bitcoin continues to make headlines and smash records, it is not a bad idea for more people to attempt to better understand the platform and how to use it. If society moves on to digital currencies like Bitcoin in the future, the transition will be a lot easier to those who have experience with it.

 

Works Cited

  1. https://bitcoin.org/bitcoin.pdf
  2. https://www.identityforce.com/blog/2017-data-breaches
  3. https://blockchain.info/charts/avg-confirmation-time
  4. https://www.coindesk.com/information/what-can-you-buy-with-bitcoins/

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