As bitcoin continues its rapid emergence as an alternative to fiat currency, questions still persist in some circles regarding it's legitimacy. Some of this is perpetuated by media wonks who are determined to cast bitcoin in a bad light. In other cases it, legacy institutions threatened by potential changes to their long held turf are lashing out, seeding inaccurate information in an attempt to derail the cryptocurrency movement.
Here are seven questions that continue to surface in conversations regarding bitcoin:
1. Isn't bitcoin simply a front for black market, illegal activities?
Sure, bitcoin has had its share of nefarious dealings, with the online site Silk Road being most notorious case. But I would argue that black market, illegal activities occur at a much higher rate offline because hard, paper currency transactions are the hardest to detect. Of course, many are saying that the anonymous nature of bitcoin makes it a haven for criminal activity. But the truth of the matter is, bitcoin's anonymity may been overstated a bit as the blockchain ledger still offers some form of tracking for authorities seeking to identify the culprits of illegal activity
Financial technology expert Brett King says that those involved in nefarious activity and terrorist plots know that there are suspicious reporting vulnerabilities associated with large transactions. To this point, he says that if government authorities truly want to prevent crime, they would be wise to stop the flow of physical currencies and migrate the masses to electronic systems.
2. Bitcoin can't be used for everyday purchases, correct?
Ahhh, incorrect. I recently enjoyed a great dinner at Morton's Steakhouse with a Gyft Card purchased with bitcoin. And the same with shopping for groceries at Whole Foods.
So the truth here is that growing numbers of merchants and retailers, whether directly or indirectly are accepting bitcoin. This includes the likes of Dell Computers, Overstock.com, Expedia, Tesla Motors, WordPress, and the San Jose Earthquakes professional soccer team.
In fact, I just read today that a landlord in the city of Saskatoon in the Canadian province of Saskatchewan is now accepting bitcoin for rents.
3. Doesn't the price volatility of bitcoin put them at risk?
No doubt that this risk exists, which can create a great deal of unease for both consumers and merchants. The good news here is that services have been created to make this volatility irrelevant. In other words, the instant a bitcoin payment transaction occurs, there are means to immediately convert it to its cash equivalent without a loss in value.
4. Isn't it risky to use bitcoin send/receive money from other countries?
To the contrary. Case in point--I have a client who has a speaking engagement in the Ukraine where he'll be receiving $5,500.00. Would he would be wise to request payment in bitcoin? Me, I sure as hell would because wire transfers are such a logistical hassle. And besides, those foreign transaction fees can be hefty. What's nice about bitcoin is the expediency in which he'll receive his money which then can be immediately moved into U.S. currency. It even beats receiving a check that could take days to arrive and to clear the bank.
5. But isn't Bitcoin tangible?
[Me laughing] Sure you could argue this, but either is physical cash which consists of either worthless metal or paper. The value of a currency is determined by the level of trust that a community of people give to it. So in a sense bitcoin could best be described as cash whose value exists digitally.
6. Isn't it just a matter of time before the feds strictly regulate it or shut it down completely?.
This is the most common objection to bitcoin I hear. My common response is that "there is no 'there' or 'it' to shutdown because bitcoin is a decentralized global currency. In other words it's out in the ethers without a centralized location or server. Moreover, Bitcoin is not under the auspices of a single centralized-government, making it extraordinarily challenging to regulate and next to impossible to shut down.
7. Bitcoin has not proven to be secure because of all of the breaches it's experienced. Correct?
Yes, there is no denying that bitcoin has definitely had its share of breaches. But the intrusions to the bitcoin are largely the result of mismanaged security protocols, not the foundational system itself. For consumers, bitcoin can provide highly stealth levels of security if used correctly, and when cold storage vaults and two-factor authentication passwords are used.
Most experts agree that hacking and identity thefts commonplace with credit-card systems, pose a much greater threat than those with bitcoin. Why? Because unlike bitcoin, credit card systems and financial institutions require the sharing of private information which fuels identity theft. The $148 million attack on Target in Decenber of 2013 is just one example of the toll that having consumer information attached to their account can exact.
Michael is a Denver-based journalist and blogger specializing in the alignment between free markets and economic liberty. He is very active on Twitter @biz_Michael