In government we trust
How, then, can Bitcoin overcome these many obstacles and gain acceptance with the general public? Jerry Brito, senior research fellow at George Mason University's Mercatus Center and the co-author of "Bitcoin: A Primer for Policymakers," believes that it's "only a matter of time before a Tim Berners-Lee type figure comes along and [makes Bitcoin] the financial equivalent of the Web."
OK. But what happens until then?
Brito believes that regulatory uncertainty is the biggest barrier Bitcoin faces. For example, who refunds the Bitcoin payer if the goods are not as promised? When shopping for hockey gear, for example, you receive a Toronto Maple Leafs jersey instead of the Montreal Canadiens jersey you ordered: How should Bitcoin 'banks' fully and legally protect Bitcoin depositors? If the Bitcoin exchange rate skyrockets, must Bitcoin holders pay capital gains on their holdings? How do merchants manage Bitcoin record keeping? All these questions demand an answer from regulators.
This need for regulatory certainty is likewise echoed by Coinbase, a start-up that offers a range of Bitcoin-related services. "Clear and consistent government regulation will help lead to widespread use," a company spokesperson told me. "If intelligent regulation surrounding Bitcoin is put in place, it will further encourage mainstream merchants and consumer adoption, which could be a tipping point for Bitcoin going mainstream."
How Bitcoin can grow
Assuming those rules get put in place, why would people turn to Bitcoin? According to Adam White, director of business development for Coinbase, thousands of merchants are already using Bitcoin due its lower transaction fees.
Fees matter dearly to merchants. Visa, for example, charges about 1.5 percent of the cost of an item plus a network interchange fee. For every $100 the merchant sells on credit, nearly $2 goes to Visa's fees. Bitcoin offers a real chance to shave this to 1 percent of the item's price, for example, or theoretically, down a quarter once there are enough competing Bitcoin processors on the network. It's certainly possible that some merchants will pass on a portion of these savings to their customers.
As for consumers, White cites Bitcoin's privacy benefits as an attractive reason to turn to the currency. "Consumers paying in Bitcoin are protected from the risk of having their personal, identifiable information intercepted and stolen which can happen with credit cards," White added. "There is no risk of identity theft when paying with Bitcoin."
The risk may be low, but it seems doubtful that any online transaction carries zero-risk of identity theft. Still, Bitcoin could make online shopping a more painless process: There's no need to type in a 16-digit credit card number plus a security code if you've got a pocket full of Bitcoins.
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