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How to Spend a Bitcoin
Consider the U.S. dollar: It can be exchanged for goods and services, holds a predictable value over time, and quantifies worth. Now consider the bitcoin: It can be exchanged for very few goods, only after much effort, and mostly online. And because it holds an unpredictable value over time, bitcoin is bad at quantifying much of anything besides demand for itself. The dollar exists on paper and in coins. The bitcoin exists in data. Dollar supply is set by the people in charge of the Federal Reserve. Bitcoin supply is set by computers and the nerds who use them.
I succumbed to the strange draw of digital currency not because I trust computers more than central banking systems, but because I wanted to find out what it's like to use an algorithmically controlled medium that's completely untouched by human influence for conducting human-to-human exchanges. What's it like to use money that lays bare the tautological notion1 on which money is based—that it has value because people value it?
Like most things, bitcoins get more expensive as demand increases. So while $15 could buy a single bitcoin and change in January, it now can buy slightly less than one tenth of one. When I decided to buy mine, on April 152 I got 1.12069832 bitcoins in exchange for $1153. The coin began burning a hole in my pocket as soon as my dollar-to-bitcoin trade was complete.
I resisted the urge to sell it4 and instead tried to use it—after all, for money to be money, it has to work. But one of the main problems with bitcoin is that it's not very good at being functional currency. Bitcoin devotees say it will improve online transactions—the coin is terribly difficult to forge, and transactions are anonymous and irreversible. Plus, it is free from government regulations. Already the appeal is clear on Silk Road, the bitcoin-only marketplace that does nearly $2 million in sales each month. Using the Tor browser to enter the deep web, I browsed5 Silk Road's mostly illegal wares (about 20 percent of items listed fall into the category "weed.")
Beyond anonymous drug purchases, bitcoin has been slow to catch on in the physical world. But I did find a couple of places to spend my digital money. The first was pizzaforcoins.com, where you can pay for pizzas from a few chains using bitcoins. To order pizza from Domino's6 I went to the Domino's site and went as far as checkout. Then, per pizzaforcoins.com's instructions, I wrote down the store number, went back to pizzaforcoins.com, chose enough pizzas to satisfy the Popular Mechanics office's hunger, entered the store number, and instructed my online bitcoin wallet to send .709 of a bitcoin to the pizza site (by the time the pizzas arrived, their value had jumped to .72279221 of a bitcoin). Within 10 minutes, the pizzaforcoins.com people used prepaid Domino's gift cards to complete my order.
Matt Burkinshaw, one of the site's founders, said that besides converting bitcoins to dollars to buy the gift cards, the company also keeps its money in bitcoins. "We would much rather hold onto coins than fiat," he says. By refusing to even name the U.S. dollar and instead calling it fiat, Burkinshaw emphasizes what bitcoiners don't like: the government-regulated value of dollars.
Post-pizza, I teamed up with my friend Ryan and went to EVR, a clubby Manhattan bar playing Beyonce and Justin Timberlake songs with the speed and bass dialed up. One of the bar's founders, Charlie Shrem, stands to gain from the rise of bitcoins—not only at the bar but also in his other business venture, Bitinstant, the payment system I used to convert my dollars to bitcoin credit when I was getting started. (Shrem also co-chairs the Bitcoin Foundation, which promotes and helps monitor the currency.)
Ryan and I had the best martinis we've ever had7, and also the most laborious paying experience8. We got our check—$28—and told the waiter we wanted to pay with a bitcoin. She brought over a tablet with QR code generated by Bitpay, a bitcoin payment-processing system. I was supposed to scan the code using a mobile wallet app, which would then turn the QR code into a long alphanumeric string that the two exchanges require to transfer the money. But I didn't have the mobile wallet app installed on my phone. We seemed to be at impasse. Then Charlie Shrem bounced excitedly over to my table to help out, and we eventually decided the best solution would be for him to read to me the alphanumeric code—a plan that assumed I could type the 34 characters without thumbing the wrong key. I did, and the payment went through almost immediately.
What's more, the frustratingly long payment process actually cost me money. When I ordered my $14 martini, it cost .09611423 bitcoins. When the payment finally went through, it cost .09728978 bitcoins. If a club like EVR were to keep up with bitcoin's price changes, it would incur huge menu costs (for example, the cost a restaurant has to pay to reprint the prices on menus every time the currency fluctuates). And if the system truly took off, conceivably customers would bombard waiters with requests to pay their tabs any time bitcoins jumped in value. For bitcoin to work as an effective currency, there'd have to be some way to avoid the minute-by-minute changes in value.
Even though bitcoin doesn't really work as money (yet), it's still pretty fascinating: For a made-up, completely digital currency based on nothing and with no human regulation to be worth anything at all is pretty astounding. Some people speculate on bitcoins with the hope of easy money, of course, but true bitcoin believers are those who adhere to the driving philosophy of the currency: that a decentralized monetary system under algorithmic control rather than human control is more trustworthy and inherently stronger than anything else out there9. But that's not going to happen until I can pay for a martini in less than 10 minutes.
Read more: http://www.popularmechanics.com/technology/gadgets/tech-news/how-to-spend-a-bitcoin-15397481s
