The realm of Bitcoin is one of confusion and the dark market. Bitcoin is a tertiary form of payment that is slowly taking over the backroads of the Internet. Bitcoins are holograms, Bitcoins are nothing but bits and bytes in the internet ether and, sometimes, Bitcoins are actually made of metal you can hold in your hand.
Bitcoin is certainly confusing to even the tech savvy. Here’s how the TuboTax blog tried to explain the phenomenon in 2011 in a long and tortuous infographic:
I first learned of Bitcoin in a November 15, 2012 blog post from Automattic employee and WordPress Guruji Andy Skelton:
At WordPress.com, our mission is making publishing democratic — accessible and easy for anyone, anywhere. And while anyone can start a free blog here, not everyone can access upgrades (like going ad-free or enabling custom design) because of limits on traditional payment networks.
Today, that changes: you can now buy WordPress.com upgrades with bitcoins.
PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.
I admire Andy Skelton a lot. He’s been kind and generous to me during my tenure as a WordPress.com customer, so I carefully read his precise instructions and tried to earn some Bitcoins. I thought Bitcoin was, perhaps, a better and friendlier PayPal. Alas, I could not figure out how to even get started with Bitcoin. I installed a Bitcoin wallet on my computer that timed out trying to connect to its server.
I tried to determine out how to “mine” Bitcoins of my own. I finally gave up and wanted to just buy some Bitcoins from somebody else — but the whole purchasing/exchange process seemed shady where my real money was being spent on a Bitcoin that had no, assumable, transferable value in an everyday, real world, exchange of goods. I was trying to purchase something physical that was invented to be virtual and untraceable.
I gave up on Bitcoins, but I still wonder if Automattic employees can choose to be paid in Bitcoins — and, if not, why not?
How are Bitcoin computed in a cash and direct deposit world? Do Bitcoin-ers pay taxes? Can you 1099 a Bitcoin payment? Does the IRS look kindly upon Bitcoin transactions? Are Bitcoin similar in that they share a quantifiable exchange rate with other world currencies? Or is Bitcoin doomed to become the monetary backbone of black market back alleyways?
In fact, it [Bitcoin] has really been relegated to the realm of the uber geeky, or seen as the currency of anarchists or crazy digital libertarians. The black market marketplace known as Silk Road, which allows pretty much anyone to anonymously sell “alternative products” (i.e. large quantities of one’s drug of choice), uses Bitcoin for its currency. Something which hasn’t exactly helped Bitcoin’s “cross over” appeal.
Here’s how The Verge recently described the Bitcoin economy:
The virtual currency Bitcoin isn’t backed by any assets or central authority. It’s only three years old and its exact origin is a mystery. And yet, for some reason, tens of thousands of people have determined that a single Bitcoin — essentially a unique sequence of letters and numbers — hit $105 US dollars earlier today, the most in its short history. At a time when the euro seems increasingly unstable, financial publications like Businessweek are asking if Bitcoin may the world’s last economic safe haven.
In the early days of Bitcoin, the price was decided by a small community of users who traded the currency on forums. Today users use real-world currencies ranging from the US dollar to the Polish zloty to buy Bitcoin on real-time exchanges. These exchanges determine Bitcoin’s price based on what people are willing to pay. The largest of these exchanges, by far, is Mt. Gox.
Bitcoin is on a surge:
It’s probably fair to say that the big rise in Bitcoin this year has caught many by surprise. Today, the value of one Bitcoin hit $100. In early March, they were trading below $35. In January, they were trading below $15.
Have you ever purchased something with Bitcoin? Did you do any Bitcoin mining? What is the future of this transient Bitcoin economy, and would you ever accept payment for real services rendered in a Bitcoin exchange?