Friday, November 29, 2013
Bitcoin has an image problem. But some entrepreneurs believe a wholesome makeover could take this unregulated digital currency mainstream, and what could be more wholesome than holiday shopping?
Bitcoin—the currency of choice for buying illegal goods online—has cultivated quite the bad-boy image. But some entrepreneurs believe a wholesome makeover could take this unregulated digital currency mainstream, and what could be more wholesome than holiday shopping?
On Black Friday, Bitcoin boosters are urging shoppers to ditch their credit cards and open up their Bitcoin wallets. And shoppers like David Allison are doing just that. He's been giving a lot of thought to what he'll buy for his wife this Christmas.
"My wife and I are expecting a baby in March," he says. "And I know she loves the concept of nesting."
He's been eyeing a piece of jewelry he found on a site called Bitdazzle. It's called a "Nesting Together" necklace. The product image shows three little metallic eggs nestling inside coiled silver wire, kind of like a tiny bird's nest with chicks ready to hatch.
"It's pretty cute, and I think that she'd like it," Allison says, hovering over the "Add To Cart" button. "Bitdazzle shows me, too, that it's 0.042 Bitcoin."
Or $34. A nice stocking stuffer, he says. Especially because he's essentially getting it for free.
About a year ago, Allison earned himself one Bitcoin. He didn't pay for it. He got it through a process called mining. Basically, he programmed his computer to solve really tricky puzzles while he slept. Back then, one Bitcoin was worth a measly $10 or so. But by the time I interviewed Allison, his Bitcoin had skyrocketed to nearly $800.
"I've just held them," he says. "I saw the value continuously increasing. But now it does seem like a great time to spend."
Allison thinks it's a great time to spend because now he can actually buy things he wants.
Online drug dens like the infamous Silk Road have been shut down, and mainstream Bitcoin markets like Bitdazzle are popping up in their place, offering crafty, legal products like handmade soaps, jewelry and other gift-worthy knick-knacks.
Hieu Bui is one of the entrepreneurs behind Bitdazzle. He's the CEO of a startup based in downtown San Diego. (Full disclosure: Allison and Bui both work at the same startup incubator, but for different companies. They're not close friends outside of the startup scene.)
Bui sees mainstream potential for Bitcoin, but only if it can shed its negative associations. He says his company is proactive about keeping Bitdazzle legit.
"Everyday, our team that you see behind me actually looks through every merchant who signed up, all their products and we ban things that aren't above board," Bui says.
But if everything's on the up-and-up, why should shoppers use Bitcoin at all? If they don't need to be untraceable while buying stuff that could land them in jail, what's the point?
Bui says Bitcoin present a cheaper alternative to credit cards, which levy transaction fees on everything we buy online. Even with the allure of lower charges, he knows people won't use Bitcoin unless they can trust it. That's why he's encouraged to see U.S. lawmakers starting to take interest in Bitcoin.
"The government has to be involved. Legitimate businesses like us have to be involved. And places like the Silk Road have to be shut down," he says.
But all the hype hasn't convinced everyone Bitcoin is headed for the mainstream.
Sarah Meiklejohn is a researcher at UC San Diego who's been infiltrating the world of Bitcoin. She tracks the activity of buyers and sellers in this emerging economy by purchasing random stuff in various marketplaces.
Based on her experience, Meiklejohn says some of Bitcoin's flaws are obvious. The price swings wildly from hour to hour and transacting in Bitcoin is still too confusing for many online shoppers. But she says the biggest problem is that Bitcoin has zero consumer protections.
"Once your Bitcoins are stolen, they're gone," she says.
The exchanges where people often store their Bitcoins are continually being hacked and plundered. Lately, Meiklejohn has been getting desperate emails from lots of people who found that out the hard way.
"Even if I could track them, it's completely unclear what that would accomplish," she says. "It's not like then someone will be obligated to give them back."
Meiklejohn says she's intrigued to see if new sites like Bitdazzle succeed. But for now, she actively advises her friends and family to steer clear of Bitcoin.
As for her own holiday shopping habits, Meiklejohn may be close to getting a Ph.D. in computer science, but she still prefers shopping at brick and mortar stores.