Bitcoin: Its Flaws, Its Future, and Where to Spend It

Bitcoin: Its Flaws, Its Future, and Where to Spend It

Bitcoins: Likely headed for a Tulipmania-like crash. Image via i8seattle on Flickr.

In 1630s Holland, the in-vogue product was tulips. The price of the flower rose dramatically, and many people paid a pretty penny for one. Then, the price abruptly fell. Later, this period of time was called Tulip Mania. How is this relevant to today?

Experts predict a similar thing will happen with Bitcoin, a volatile digital currency. During its five year history, the amount of money Bitcoins are worth has changed significantly. Now, they're worth an inflated sum of money—and, all things that go up must go down, too. Therefore, it's likely that right now we're in a "Bitcoin bubble" that has to burst sometime. According to Nout Wellink, the former president of the Dutch Central Bank, the popularity and inflated price of Bitcoins is worse than tulips in the 17th century. "At least then you got a tulip [at the end], now you get nothing," he said.

How does Bitcoin work?

It can be used for purchases instead of cash or credit cards. Users have virtual wallets and keys. The unique keys can be used to send payment to or receive payment from other virtual wallets. Bitcoin operates via mathematical equations and computer verification.

What are some of Bitcoins' flaws?

Bitcoin—and other digital currencies—seek to challenge "typical" currency that is highly regulated, with rules attached to its use. In contrast (and by intentional design), Bitcoin is largely unregulated. While in theory this lack of regulation is a good thing (there isn't a "middle man"), in practice, Bitcoin has fallen short.

Due to the lack of regulation, it is impossible to get your Bitcoin money back if you lose the key. If you lose a credit card, you can call up the company and tell them to freeze your card.  This isn't the case with Bitcoin. For example, James Howells accidentally threw out a hard drive with 7,500 Bitcoins (roughly $7.5 million dollars). He simply forgot that they were stored there. Howells can't call up Bitcoin to get his money back—the only way to retrieve the money would be to find the hard drive with the key in a landfill (where it likely is... somewhere).

Also, the Japan-based Mt. Gox, one of the largest Bitcoin exchanges, shut down and filed for bankruptcy last month. Mt. Gox admitted that a significant amount of Bitcoins have been stolen or lost, and need to be recovered. Some see this as a negative sign, while others note there are several other Bitcoin startups/efforts that are backed by those with significant experience in the industry. Regardless, the shut down illustrates that there are serious problems Bitcoin needs to solve.

What's the future like for digital currencies?

Whether or not Bitcoin becomes the #1 way consumers pay for online shopping like supporters believe, it is inevitable that digital currency will play a significant role in our future lives. Why? Digital currency is steadily gaining more popularity and likely will only continue to do so. But popularity along with volatility isn't the best combination. The key (wordplay intended) is to ensure that digital currencies meet peoples' needs and wants without a ton of headaches. We're not there yet, but hopefully it's in our future.

Where is Bitcoin accepted?

In the meantime, feel free to spend your Bitcoins at stores that accept them. In the online shopping sphere, the largest retailer that accepts Bitcoin is Overstock.com. Other retailers who accept Bitcoin include Tiger Direct and select Etsy vendors. If you have Bitcoins in your pocket and are looking for a significant other, good news: OkCupid accepts Bitcoins for premium memberships, too. In addition, Bitcoin is accepted at some small brick and mortar stores.

We compiled a list of more merchants that accept Bitcoin. This isn't a complete list, so check a merchant's website to see if it accepts Bitcoin.

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