Bitcoin is known as an underground digital currency with neither government regulation nor a central bank. It relies on peer-to-peer transactions and complex cryptography to bypass traditional payment models.
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Once thought of as no more than a fringe Web fascination, the currency has rocketed into to the mainstream conciousness. A catastrophic valuation dropoff last week made headlines around the world, often highlighting topics like the Winkelvoss twin's huge bitcoin stash and the Reddit user who invested his entire life savings in Bitcoins - and cashed out at an enormous profit.
Despite the turmoil, or perhaps because of it, some real businesses have begun accepting Bitcoins. Last Tuesday, for example, online-dating site OkCupid announced it would take Bitcoins as payment for its "A-list subscription features." Some of these businesses could be positioning themselves for a day when the currency actually catches on, but most seem to be looking for some of Bitcoins' cool factor to rub off on them. (Businesses can limit their Bitcoin risk by clearing out their transactions daily using services like Coinbase.)
The Benefits Of Bitcoins
In simple terms, Bitcoins are a way to turn recognized currency like U.S. dollars into a digital equivalent that can be used to buy products. Bitcoins can also be stored digital wallets for later use. The exchange rate fluctuates constantly, set by a collective belief in what people will pay for them. The value of a Bitcoin sat at $119 as of Friday afternoon (down from an all-time high of $266).
The benefits of using Bitcoins come in two basic flavors: anonymity and the ability to operate outside the traditional monetary system. No surprise, Bitcoins are a primary method of online payment for illegal drugs and weapons on online black markets. But Bitcoins are also a way to avoid dealing with PayPal, Amazon and other online payment methods that many Web users dislike. The fees are reportedly lower, and the transactions are instantaneous because they don't have to move through a bank.
Buying Stuff With Bitcoins
So what can you actually buy with Bitcoins? It turns out that enough different companies accept Bitcoins that you could use them to buy almost everything you might need. Want to buy clothing, homemade cosmetics or train tickets? Bitcoins can do all that, and more.
But Bitcoins remain very much a niche payment method. In accepting the currency, OKCupid joined the ranks of a very small circle of large Internet companies particpating in the system. Others include WordPress, which will sell you everything from Web hosting to CSS packages in exchange for Bitcoins. WikiLeaks and 4chan, meanwhile, are part of a growing list of online organizations that accept Bitcoin donations.
OkCupid could pave the way for more large-scale Web companies to explore alternative payment schemes. "One of the reasons why we want to be early in the mix is so we can learn," said OkCupid co-founder Sam Yagen in an interview with Ars Technica.
Will Trade Bitcoins For Food
Living off Bitcoin transactions alone might still be difficult, but at least you won't starve. Last week Foodler became the first food-ordering and delivery service to accept Bitcoins. (Other sites like PizzaForCoins.com let you pay the site in Bitcoins and then place your order for you in U.S. dollars, charging a 0.02BTC fee.)
"We're helping the community and want to support that community and it seems like a natural progression," said Christian Dumontet, a co-founder of Foodler. In as little as six minutes after initating the transaction through Foodler's website - which uses a Bitcoin deposit address and QR code to handle the exchange - hungry users get an email confirming the rate in U.S. dollars at which they were charged. Bitcoins can be fractioned down, so you don't have to order $119 worth of dinner at a time.
Dumontet acknowledged that using Bitcoins for food delivery is of interest largely to core enthusiasts of the currency; "It's a small fraction of our online orders," he said, about 20 orders a day. "But that's how it starts," he added. "Every day since we've launched it, we've seeing an increase in usage."
Top image courtesy of Shutterstock.