How to Spend Cryptocurrency in the Real World
Bitcoin piqued the interest of investors worldwide after its meteoric increase in value during 2017. However, holding Bitcoin as an investment item is just one of many ways it can be used. A decentralized cryptocurrency, Bitcoin was designed to function like a traditional currency without the need for banks or national treasuries to regulate transactions. Bitcoins and other cryptocurrencies are actively traded via online exchanges located around the world.
Many people are using it just like regular money, but there are also several other potential and actual uses for both Bitcoin and cryptocurrency altcoins like Ripple, Ethereum, Dash, and many others. Though many of the other commonly described “potential” applications for cryptocurrency sound like futuristic speculation, it is certainly possible to use Bitcoin and other currencies in a real, everyday sense today. This article will give an overview of how Bitcoin (and a few other up-and-coming altcoins) can currently be put into use.
Fees and Why They Matter
Bitcoin transactions are broadcast to the entire network and verified into “blocks” by miners. Miners are essentially computers which compete to identify and make these blocks; they are rewarded for doing so both in Bitcoin “bounties” and through fees that users pay per transaction. Bitcoin has a finite supply, and the reward per block decreases over time. This means that miners increasingly rely on the fees paid per transaction.
In late December 2017, there was a sudden spike in transactions which caused the average fee per transaction to leap from a few cents to over 35 dollars per transaction; it has since decreased due to better processing time. This matters to someone trying to spend Bitcoin because fees can be variable depending on how big your transaction is and how fast you need it to happen. Fees influence not only your buying power, but also how likely companies are to go through the hassle of beginning to accept Bitcoin payments.
Using Bitcoin Wallets for Real Purchases
Online companies such as Microsoft, Dell, Steam, Overstock, and several others currently accept Bitcoin directly. Using Bitcoins directly this way requires a wallet. While wallets can be hardware or software based, this article assumes that you use a software-based wallet such as Mycelium for making purchases. (See more information on Bitcoin wallets here). Wallets, generally speaking, provide a secure way to make purchases and receive payment through the use of private and public “keys.” They also estimate the fee required to complete the transaction for you.
At stores which accept Bitcoin, it is typically very easy to make purchases from a Bitcoin wallet; the process could be as simple as a few clicks; you would select your client on the merchant’s website, and the link would automatically open in your software wallet, where you could instantly confirm the transaction. Alternatively, the merchant might generate a public address (a unique string of numbers and letters). Then, from within your wallet, you would send your funds to that address much the way you would type in an email address.
Finding Retail Stores
Because of the volatility of Bitcoin and its relatively high transaction fees, brick-and-mortar stores have been slower to accept Bitcoin. However, in the stores which do accept coins directly, the process typically works a lot like Venmo, Squarecash, or other smartphone banking apps. Vendors generate a code for you to scan, which then interacts with the wallet on your phone to make the transaction.
You can find a map of businesses accepting cryptocurrency in your area on sites like coinmap. Larger cities typically have many vendors directly accepting bitcoin; in more rural areas, your mileage may vary.
Using an Intermediary: Bitcoin Gift Cards and Pizza for Coins
One way around the issue of merchants not accepting Bitcoin is to use intermediary apps or cards which exchange Bitcoin for fiat currency for you. Pizza for Coins is one example of a service which purchases pizza for you in exchange for coins and is available in many major U.S. cities. Services like All3Bitcoin will purchase items from online stores for you in exchange for your bitcoin.
A similar method is to purchase retail gift cards for any major store using cryptocurrency which can then be redeemed online or at brick-and-mortar stores. Gyft and eGifter both allow you to do this for stores such as Amazon, Walmart, Target, and many others.
Bitcoin Debit Cards
Another common way to use Bitcoin is through a pre-loaded debit card such as Wirex, Xapo, or Bitpay. When you use a debit-card, you are not transacting Bitcoin directly, but rather storing coins with the card company. The debit card company confirms the balance rather than actually making the transaction in the moment the card is swiped. Bitcoin debit cards can be virtual or plastic, and function virtually identically to fiat currency debit cards.
The obvious advantage of such cards is that you can use them to make purchases at any store anywhere in the world where cards are accepted; the merchant receives payment in their currency, and your bitcoin balance is deducted. They make great alternatives to travelers’ checks when used this way, and enable you to potentially live your entire life transacting only in Bitcoin. If you’re transacting only lower amounts of currency, some cards do not require ID-verification, making them more anonymous than regular cards.
Downsides to Debit
On the other hand, they also add the middle-man back into the equation, re-centralizing your cryptocurrency. Companies are vulnerable to shifting legislation, and there is always a chance that your cards could stop working without warning. Some people believe that removing the peer-to-peer aspect of Bitcoin defeats the purpose of decentralizing by returning to a centralized mediator, while still subjecting users to the volatility of unregulated currency.
For example, in January of 2018, VISA abruptly stopped supporting cards. It is still unclear whether VISA’s supported cryptocurrency debit cards will go back online, or how shifting international regulatory tides will affect cryptocurrency both as a whole and through applications like debit cards. However, debit cards do provide a very convenient, low-cost, and quick way to use Bitcoin at the majority of establishments worldwide.
What about other Cryptocurrencies or Altcoins?
Bitcoin holds the advantages of being the first and most visible cryptocurrency. However, it’s also slow and cumbersome and doesn’t provide complete anonymity. Some younger alternative coins (or altcoins) address these issues or aim to solve completely different problems.
The altcoin Ripple can process thousands of transactions per second, and Monero supports more fully anonymous transactions. Other coins have used blockchain technology to depart from the financial use value of Bitcoin to offer other services which are potentially even more revolutionary.
For example, Golem and Sia allow people to make calculations or run tests using massive data sets without using up all their processing power. Ethereum, the next biggest coin after Bitcoin, can be used to set up “smart contracts” such as managing an escrow, making a financial contract, or setting up a public bounty for solving a problem.
While these applications are all pretty cool, they aren’t yet user-friendly enough for the average person to access their full potential. It will realistically take several years before many of these coins make good on their idealized functions. For now, likely the best use of cryptocurrency is as an investment, to hold on to as companies continue to experiment, grow, and innovate.
What are some ways I can use them today?
The actual use value of cryptocurrency for you depends on your situation; someone trying to avoid rampant inflation in Venezuela has very different needs from someone interested in investing on the ground floor of an exciting technological development. However, in addition to investing, here are some ways you could use cryptocurrency in the real world:
- Exchange them for gold bullion.
- As a low-cost or free, instant way of transferring money internationally (instead of a wire transfer).
- Transfer property other than money (i.e. real estate, cars, etc.) with little risk.
- Make airplane ticket and hotel reservations across the world.
- Buy a VPN.
- Purchase a computer from Dell.
- Pay for digital content on Microsoft.com, or gift cards to Target, Nike, Amazon, or Walmart.
- Buy plane tickets and travel reservations on Expedia.com to travel the world on Bitcoin for a over a year.
All of these options are fully achievable with cryptocurrency technology as it currently exists.