Bitcoins For Pizza?
Bitcoin is an attractive but complex concept. Let’s walk through it, shall we?
You’ve probably heard bits and pieces about bitcoin floating around the media: “Bitcoin Prices Boom”, “Bitcoin Prices Crash”, “Huge Scandal Could Mean End Of Bitcoin”, “Bitcoin To Cop GST”. Confusing, right?
For the novices, bitcoin is a cryptocurrency and the equivalent of digitally paying cash.
The Bitcoin Basics
Bitcoin is a digital currency that removes the need for credit cards and even financial institutions. Existing outside of a central authority figure, bitcoin is instead controlled by the network of users’ computers and secured by encryption. One unit of the currency is called a bitcoin.
All bitcoin transactions are visibly stored on what’s called a ‘blockchain’ to prevent fraud and double-spending.
You can buy bitcoins at an online exchange with your normal Australian currency, through a bitcoin ATM, or by ‘mining’ bitcoins. There are 21 million bitcoins in existence, but they are yet to all be mined (and apparently won’t be until around 2040).
A user’s bitcoin wallet contains two keys—one private and one public. The public key is your bitcoin address, much like a username. The private key allows you to spend the bitcoins that belong to the public key. Private keys authorise transactions—if you don’t have the private key, you can’t spend the bitcoins on your public key.
The Birth of Bitcoin
Within bitcoin’s cradle lies an ideology that seeks to rebel against government control and our ingrained reliance on established financial systems.
The mysterious Satoshi Nakamoto — a hacker, or team of hackers, that first introduced bitcoin in January 2009 — provided a manifesto of sorts that explains the rationale behind the idea. The reasoning focuses on dissatisfaction with Internet commerce and its reliance on third parties for payment:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
While Bitcoin enthusiasts are optimistic about the separation of our money and “The Man”, the public reaction has been varied. Some question its longevity, whereas others see cryptocurrency as being a thing of the future — a giant step beyond the likes of PayPal.
Bitcoin has the potential to threaten institutionalised banking, and yet many voices within the financial industry merely see an elaborate political statement covering an economically flawed idea in a delicious candy shell.
But the idea of simple peer-to-peer payments seems pretty convenient, right?
In reality, the trust we currently have in our financial institutions has its perks—namely, consumer protection. But we’ll open that bank account of worms a little later.
Why the Hype?
Bitcoin has the same sort of privacy levels as a cash transaction. In theory, you have 100% control over your bitcoins. Without your private key, an unauthorised transaction cannot be made, and multi-signature technology gives further protection. The transactions themselves are permanently and highly visible on the blockchain, but the identity of users behind each bitcoin address is anonymous.
Simply put, using PayPal, you send from email address to email address; and with bitcoin, you send from bitcoin address to bitcoin address.
According to bitcoin etiquette, purchasers are encouraged to pay a tiny transaction fee to the miner that verifies the transaction, although it’s technically unnecessary. A far cry from credit card fees (the silent killer, ugh). This lack of high processing fees remains a major drawcard for potential bitcoin users and bitcoin-accepting businesses.
The Way of the Future?
Remember, Bitcoin is still in its infancy—whether it falls or flies (or both, many times) is another matter. For now, cryptocurrency is an innovative concept that offers an alternative to contemporary currency and has the potential to change the way the world transacts (particularly between currencies, borders and time zones in an increasingly globalised world).
A Forbes Magazine journalist attempted to live on bitcoin for a week in 2013. It was no walk in the park, but living in tech-geek heaven (otherwise known as San Francisco) proved somewhat advantageous. For everybody else — even after years of progress — it will still prove challenging. As this interactive map illustrates, Australia lags behind the likes of North America and Western Europe.
That said, there has been significant progress down under. The number of businesses accepting bitcoin for goods and services is growing. Westfield in Sydney’s CBD installed a bitcoin ATM in April 2014, followed by a second machine in Melbourne’s Emporium shopping centre in 2014.
These gradual installments of public acceptance seem to unconsciously legitimise a currency shrouded in skepticism, scandal and confusion.
Where To Spend
Unsurprisingly, the likes of Reddit and 4chan accept bitcoin for various purposes because it caters directly to the interests of their techie demographic. Big name companies like WordPress, Dell, Expedia and OKCupid, on the other hand, are also bitcoin-friendly, and even the CEO of Ebay has mentioned plans to integrate bitcoin as a PayPal payment option.
Check out the Bitcoin Luxury Marketplace for a smorgasbord of extravagant items that can be purchased with your bitcoins.
Room For Improvement
Potential For Illegal Transactions
It isn’t difficult to see how anonymity + online transactions = illegal purchases and seedy activities.
Much of the bitcoin enthusiasm is thought to be from the ability to gamble and buy drugs anonymously online. Gambling website SatoshiDice is one of the most popular bitcoin addresses, and while the infamous Silk Road—a veritable Amazon for illicit substances and goods — was seized and closed by the FBI in 2013, similar retailers and illegal online marketplaces continue to thrive.
In fact, reports have shown that the Silk Road closure was largely insignificant for Australians selling drugs online. Instead, Australian black market retailers on the Deep Web are booming.
While cryptocurrency is an exciting and revolutionary idea, bank-backed payment systems are probably still preferable at this point in time.
A prime example of this is the Mt. Gox hacking scandal. Once the largest of its kind, the Japanese-based bitcoin currency exchange crashed into bankruptcy earlier this year after 744,000 bitcoins (worth $409m at the time) went missing via theft or hacking.
Bitcoin transactions are irreversible, and user anonymity makes stolen bitcoins hard to recover. A hacker only needs to identify a bug in an online exchange or wallet service website or distribute malware to computers that contain users’ private keys to pull off a major Bitcoin heist.
The best advertisement for legitimate financial institutions in this debate is legal protection and customer recourse. If your bank account is breached, you can rely on that bank to help retrieve the missing funds.
In November 2013, Welshman James Howells unwittingly threw out a USB containing his account information and the 7,500 bitcoins he had acquired in 2009. Unfortunately for Howells, the bitcoin value rose substantially, and his collection was suddenly worth several million dollars. He was unable to find the USB in the landfill, and thus the bitcoins are irretrievable.
On a similar note, the current volatile value of bitcoins makes it a high-risk commodity. It is not uncommon for prices to swing 20 or 30 per cent in a day. 2013 saw price movements from $13 to $1,200, and back down to $535 a week later.
Bitcoin is still in its infancy, and volatility is expected to decrease over time with future progress and feature development. For today’s retailers who work on tight profit margins, bitcoin has some work to do before it becomes a truly viable business option.
Not Yet Mainstream
Firstly, most people have limited knowledge or understanding about the ins and outs of bitcoin. Despite growth in bitcoin-friendly retailers (that undoubtedly monopolize the business of current users keen to spend their bitcoins in offline establishments), the use of bitcoins as a way of purchasing goods and services is still pretty niche and experimental, especially in Australia.
Its novelty and curiosity factors may still outweigh its practicality.
Internationally, bitcoin is only banned outright in a few countries at this point, but Russia and China are potentially not far off, having already implemented heavy restrictions.
Closer to home, the ATO has declared that bitcoins will not be treated as money as such, but businesses will need to keep records and may be subject to GST when supplying and receiving them.
It’s important to note that we, like the majority of bitcoin-curious people, are still seeking a thorough understanding of this intriguing idea and its benefits.
Your interest in the discussion is appreciated, and we understand why. Acceptance would increase the number of payment options for your online transactions, and growing numbers of current bitcoin users would have added opportunities to pay for real-world items with their digital currency—even daily tasks like ordering takeaway at Menulog.
In fact, as far as bitcoin folklore goes, the first real-world transaction using bitcoins was for pizza. In May 2010, Floridian programmer Laszlo Hanyecz convinced a fellow bitcointalk.org forum member to bring him 2 pizzas in exchange for 10,000 bitcoins. At the time, 10,000 bitcoins were worth about $US25, but today’s bitcoin value (at time of writing) means Hanyecz’s pizzas cost him almost $US4 million.
While Hanyecz’s pizzas were simply ordered by someone else from a brick-and-mortar retailer and delivered to him, the episode clearly sparked ideas for online takeaway systems — like Menulog — and bitcoin to forge relationships that could benefit consumers and retailers alike.
When we think about the ways we can currently pay for takeaway—with the likes of PayPass and PayWave, for example—payment in bitcoins doesn’t seem nearly so farfetched. Contactless and time-saving, these technologies have been thoroughly embraced around the globe and here in Australia as well.
Bitcoin offers the opportunity to pay for your food directly to the vendor—no muss, no fuss. You don’t need a wallet—just a smartphone with a wallet app.
With multiple cryptocurrencies in existence that rival the prominence of Bitcoin—like Litecoin, Peercoin and Darkcoin—it seems probable that cryptocurrency is here for the long haul.
If so, there’s little doubt that bitcoin and its descendants will revolutionise the way we buy online, and indeed the way we order takeaway online.
In the meantime, the dubious reputation that bitcoin holds in the general public needs to be addressed. Demystifying the idea of bitcoin to those less tech-savvy than the archetypal bitcoin user will undoubtedly remove much of the surrounding confusion.
After all, having even more ways to order takeaway from Menulog’s 9000 + restaurants sounds mighty handy to us!
We’ll keep you posted.