Bitcoin is a cryptocurrency and the word “currency” is there for a reason. Although bitcoin only exists in the digital world, it can be used for purchasing different things in the real world. One of the most famous stories happened on May 22, 2010, when Laszlo Hanyecz bought 2 pizzas for 10,000 BTC. This is the first time bitcoin was used in a commercial transaction. And right now, the crypto community celebrates this day as “Bitcoin Pizza Day”.
With the rise of bitcoin popularity, more and more merchants and organizations have started accepting bitcoin as a payment option on their platforms. For now, you can use bitcoin to buy airline tickets, real estate, cars, video games, food (not just pizza), beverages. It’s also possible to pay for various online services with bitcoin, send it to charity, and much more. Also, cryptocurrency is a popular option to make investments.
The mass adoption of bitcoin is growing every year. But it affects not only the number of available places where bitcoin can be spent but bitcoin itself. It is becoming more suitable for commercial use. For example, the Lightning Network development which aims to make bitcoin transactions faster and cheaper for everyday payments.
However, bitcoin is still a cryptocurrency that is only at the beginning of its development. And its use as a payment option has its risks and advantages. Let’s take a closer look at it.
Advantages
Independence
Using bitcoin is a great example of how to become more financially responsible. Bitcoin allows users to gain more control over their funds, as well as become more independent because there is no need to coordinate transactions with banks or other third parties.
Bitcoin is a decentralized network that focuses on P2P transactions. That is, all transactions occur between the users themselves and they do not require confirmation from some centralized authority.
All this gives the user confidence that his transaction cannot be blocked and will always reach its destination.
Anonymity (pseudo)
Despite the fact that the blockchain is transparent and all transactions can be easily viewed, it is still difficult to associate a specific transaction with a specific user.
The bitcoin network uses public addresses to send cryptocurrency, which are a collection of letters and numbers in no particular order. There is no restriction for the user to create an infinite number of such addresses, so it is impossible to say with certainty how many transactions a specific user has made. Quite often, those who want to remain anonymous use one address for one transaction. Therefore, bitcoin is called a pseudo-anonymous cryptocurrency. As long as the user cares about his anonymity, he can save it.
This bitcoin feature allows the user to maintain confidentiality because only he knows his transaction history.
Low fees and high transaction speed for international payments
At first glance, bitcoin may seem slow and expensive, especially if you decide, for example, to pay with it for coffee at a local coffee shop. You need to wait up to 10 minutes for the miners to find a new block. You also need to set up a competitive fee so that miners want to add your transaction first and you don’t have to wait for another block. From the point of view of an ordinary user, this looks inconvenient.
However, the same rules apply to international transactions, and bitcoin is a winner in this field. SWIFT and other international bank transfers can take up to a few days or even a week to be processed. In addition, international transactions involve the participation of several banks at once, and each of them asks for its own commission. This commission can be tens of times higher than what you would pay using bitcoin. That is why international fiat transactions look so long and expensive compared to bitcoin transactions.
But you shouldn’t think that bitcoin is only suitable for international transactions. The development of second-layer solutions, such as Lightning Network, aims to make purchasing coffee in a coffee shop and other things as convenient and fast as using a bank card. Therefore, it is only a matter of time.
Risks
No excuses for the mistake
Bitcoin does not forgive mistakes. If you enter the wrong recipient address, then your money will go somewhere else and you will not be able to return it back, since bitcoin transactions are irreversible. If you confuse the transaction amount field and the commission amount field, then you will send much less than expected and pay a bigger price for that. If you send bitcoin to another cryptocurrency address, then you may lose your money.
Therefore, when using bitcoin as a payment option, you should always double-check the information you entered. There is no bank to complain or ask for a refund. All responsibility for the confirmed transactions rests only on the shoulders of the user himself. Not so many people are accustomed to this reality.
The development of various ways to automatically fill in transaction information may help to avoid such issues. For example, you can use QR-codes to scan public addresses or use an automated commission that is set up depending on the situation on the network like on CEX.IO.
Price volatility
Bitcoin is still at the beginning of its development, so it is prone to price volatility. Bitcoin does not have a central bank that regulates monetary policy and can influence the bitcoin price. Bitcoin price depends entirely on the market itself and its expectations. And these expectations may not always coincide with yours.
Don’t forget that after purchasing something, the bitcoin price may change in one direction or another. As a result, if you recalculate your bitcoin transaction to fiat, then you can pay more or less than you planned. The same goes for merchants. Not all sellers are ready to accept bitcoin as a payment option because they are not sure that after receiving bitcoin they will be able to immediately exchange it to fiat at the same price.
Over time, bitcoin liquidity may reach a certain level of stability and this may help the price to stay in some stable trading range. But now the bitcoin price is only being formed.
Regulation uncertainty
This risk is rather associated with accounting, not with the transactions themselves. If the regulator’s position regarding cryptocurrencies and bitcoin is ambiguous, then only a few sellers will decide to accept bitcoin as a payment option.
This means that even if you decide to buy something with bitcoin, it’s not the fact that the merchant you like will accept it. Without a legal framework and accounting regulations, a business may not be sure what to do with received cryptocurrency and how to pay taxes on it. Therefore, some are still waiting for a more clear regulator’s position regarding cryptocurrencies.
However, laws that mention cryptocurrencies and bitcoin are constantly being adopted or are already under consideration in many countries. So, over time, bitcoin may become even more affordable as a means of payment.
If earlier only a few companies accepted bitcoin and mainly as an experiment, then now the bitcoin adoption as a means of payment no longer looks like something special. Yes, bitcoin is largely used as a store of value. But thanks to the development of second-layer technologies and mass adoption, it can turn into a payment option that will be taken for granted.