Bitcoin Is Inching Toward Mainstream Use

By Alex Brokaw  NOV 25, 2013 12:55 PM

With prices skyrocketing, the digital currency is attracting investors and innovators alike.

 


Somebody purchased $150 million worth of Bitcoins on Friday, marking the single largest Bitcoin transaction by value since the peer-to-peer digital currency launched in 2008. Because Bitcoin allows users to stay anonymous during transactions if they choose to, it’s unknown who’s behind the purchase. Timothy B. Lee, a tech writer for the Washington Post, reports Bitstamp, the world’s second-largest exchange for Bitcoins, could be responsible for the 194,993-Bitcoin transaction. Lee explains that instead of one person sending Bitcoins to someone else, it’s likely Bitstamp was “reshuffling its owns funds, just as a bank might move stacks of $100 bills from one vault to another.”

Last Monday, the digital currency rallied after the US Department of Justice and the Securities and Exchange Commission told a US Senate committee that Bitcoins were legitimate financial instruments, offering benefits while possessing potential risks. The show of approval sent Bitcoin prices to record highs across multiple exchanges. On Mt. Gox, a former trading card exchange-turned-prominent Bitcoin market, the price of a single Bitcoin jumped roughly 50% to $772.

Bitcoins are currently trading around $820, having recovered significantly from earlier this year. In October, when the FBI seized and shuttered the online black market Silk Road -- where the unbacked, anonymous digital currency was prominently used -- Bitcoin lost a third of its value.
Source:bitcoin.org

Price moves like these have attracted speculators and long-term investors alike, with principals of Wall Street firms and funds investing in Bitcoins, reports Bloomberg. China has seen an explosion of interest in the digital currency, too. BTCChina opened its doors in June, and has quickly become the largest Bitcoin exchange in the world, with $60 million in transactions daily, reports the Financial Times. However, Bitcoin’s volatility can make them difficult to use as a currency (as opposed to an investment). There are some who see Bitcoin as dangerous, or as is the case with The Atlantic economics and business editor Matthew O’Brien, a bit silly.

In a recent editorial, O’Brien compared Bitcoin to the Segway scooter, reliving the “mass delusion” the Segway caused back when it was released in 2001, from Steve Jobs being quoted in Time saying it would be as big a deal as the PC, to Segway founder Dean Kamen thinking he’d need 24-hour-per-day factories producing 10,000 Segways per week to keep up with demand. Neither of these things happened because, as O’Brien puts it, “you can’t ride a Segway without looking like a smug dork,” and people won’t use something so ridiculous regardless of how technically impressive it is. The same goes for Bitcoin, O’Brien says, arguing the currency’s severe volatility and the inability for transactions to be reversed make its use unlikely to expand far beyond “libertarians, gamblers, and people buying drugs."

The Washington Post's Lee wrote a response to O’Brien’s diatribe, defending the digital currency's staying power. Lee doesn’t disagree with the suggestion that Bitcoin isn’t ready for mass adoption as it exists now, but he does point out a major difference between the Segway and Bitcoin: One is a finished product and the other is a technology platform with the potential to be improved upon by new innovators. Lee thinks Bitcoin is less like the Segway and a lot more like the PC, which was an esoteric, expensive, and technically complex machine in the late 1970s and became the affordable, ubiquitous home and office fixture it is today. That transformation happened because entrepreneurs created programs that were more user-friendly, with applications that had wider appeal. People didn’t change their habits to accommodate the capabilities of the first PCs; early PCs changed to meet the habits and needs of people.

The same thing could happen with Bitcoin, Lee argues, noting it’s already happening to some extent on the merchant side. Atlanta-based Bitpay accepts Bitcoins for over 2,100 merchants, automatically converting and depositing payments in dollar amounts into merchant accounts. On the consumer side, Lee believes the first “killer app” is likely to be in the international payments business, i.e. wire transfers, where steep fees and fluctuating interest rates make Bitcoin's severe price swings less of a deterrent.

It seems Lee isn’t the only one who believes Bitcoins are here to stay. A new crop of entrepreneurs is trying to make Bitcoin a conventional currency, reports the New York Times. Jim Breyer, a venture capitalist who serves on the board of Wal-Mart (NYSE:WMT) and was an early investor in Facebook (NASDAQ:FB), believes major worldwide retailers will adopt systems built on Bitcoin. Breyer has invested in Circle Internet Financial, which is seeking to create an online-payment system similar to eBay (NASDAQ:EBAY)-owned PayPal, but with Bitcoins. One of the biggest draws for retailers to use Bitcoins is the elimination of transaction fees, which can range from 2-3% among credit-card providers like Visa (NYSE:V) and American Express (NYSE:AMEX).

Companies that do currently accept Bitcoins as payment are few and far between. WordPress and Reddit are among them. So are dating website OKCupid, bitTorrent directory The Pirate Bay, and Grass Hill Alpacas, a 115-acre alpaca farm in Haydenville, MA, that sells alpaca socks for Bitcoins online. Last week, this group was joined by Virgin Galactic, Richard Branson's commercial space company. Branson announced that would-be astronauts would now be able to pay for their trips into space with the digital currency. According to Branson, the first Bitcoin-purchased seat has already been filled by a future astronaut in Hawaii.

Read more from Minyanville about Bitcoin:

The Bitcoin Wealth Effect: The Currency's New Record Is Chilling Sign


The Basics on Bitcoin: 11 Things to Know About This Suddenly 'Hot' Digital Currency

Follow me on Twitter: @brokawbrokaw

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.