As a medium of exchange, Bitcoin has some interesting characteristics. It is the very first digital asset of value that can be transferred over the internet without any specific third party having to approve the transaction or being able to deny it. It is also an asset that is transferred from one owner to another rather than moving via a series of third party debits and credits, for example, through one or more banks. In this respect it is genuinely novel.
This is worth repeating:
Bitcoin is the very first digital asset of value that can be transferred over the
internet without any specific third party having to approve the transaction or
being able to deny it. Can you make payments with bitcoins? Yes, absolutely anytime, anywhere. Is it fast?Sometimes-depending on a number of factors. At a settlement speed varying between seconds and hours, it is certainly faster than some traditional payment methods, but slower than others. Different
cryptocurrencies settle transactions at different speeds.
Is Bitcoin widely accepted? Well, among its community it is widely accepted,
and some prefer using it to traditional payment mechanisms”. But by a
global standard, no, it is not widely accepted. Could this change? Could more
and more people and businesses accept bitcoins or other cryptocurrencies?
Perhaps not in large stable economies, but possibly in unstable smaller economies. There are a number of factors to consider when deciding if bitcoins should be used in preference to the domestic currency or existing alternatives.
What about merchant adoption? Every now and again, you might read that a merchant now accepts bitcoins or other cryptocurrencies as payment. What's
going on? Doesn't this mean bitcoins are improving as a medium of exchange? Well, yes and no. In reality, most of the companies who say that they accept Bitcoin as payment don't actually accept bitcoins or hold them on their balance sheets. Instead, they use cryptocurrency payment
processors that act as an intermediary by quoting a price to the customer in bitcoins (based on current prices of bitcoins to dollars on various cryptocurrency exchanges), accepting the bitcoins from the customer, then
wiring an equivalent amount of conventional currency (fiat in the jargon)
the boring way into the merchant's bank account.
Here is how it works:
The customer fills their shopping cart with items, then clicks 'check
out'.
They are presented with the total value of the goods in local currency. 'How would you like to pay?'
3. Customer selects 'Bitcoin'.
4. They are then shown the number of bitcoins that they need to pay. The
. payment processor calculates this number by using the current
exchange rate between Bitcoin and local currency, found on one or
more cryptocurrency exchanges. The customer then has a short amount of time to accept the price before the price of Bitcoin changes and the payment processor has to re-price the basket. The pricing refresh time can be as short as 30 seconds due to Bitcoin's volatility. 30 seconds!
Bitpay® is a good example of this kind of cryptocurrency payment processor. In 2013-2015 a number of merchants announced that they now accepted Bitcoin. This was good cheap press for merchants, and many companies did this: Microsoft, Dell, and even-my favourite-Richard Branson for Virgin
Galactic trips. Just think-in 2013 you could buy a trip into space and pay in bitcoins! However, since then, many merchants have quietly dropped Bitcoin as a method of payment.. So, in these cases where a merchant says they accept Bitcoin as payment, bitcoins are a medium of exchange from the customer's perspective. But these cases are rare, and currently it is not a widely used medium of. exchange. In July 2017, investment bank Morgan Stanley produced a report. on Bitcoin merchant adoption that found that, in 2016, only five of the top. 500 online merchants accepted Bitcoin and, in 2017, that number had dropped to three.