NEW YORK (MainStreet)So what's wrong with actual U.S. dollars? Meet the twenty=first-century cool currency, Bitcoin - the virtual, peer-to-peer currency that operates without the backing of any nation state and which is making a run at becoming the hipster currency du jour.
"Bitcoin is the online equivalent of a bag of cash," said Kevin McIntyre, an economics professor at McDaniel College in Maryland. Two distinctive facts about Bitcoin: anonymity is baked into the system ("it's almost impossible to match up a person with a transaction," said McIntyre) and almost all transactions are irreversible. That latter fact appeals to merchants - who are pestered by "chargebacks" when credit card companies void a transaction and leave the merchant out of the money.
A third fact: Bitcoin transactions involve negligible transaction fees, typically under 1%, compared to over 3% for most credit card transactions.
Do the math. There is definite appeal of Bitcoin to merchants.
"We like Bitcoin a lot, especially for international orders," said Alex English, a partner in ProtoParadigm, an online retailer that sells supplies for 3D printers. "We know we would have chargebacks and that is peace of mind."
Peace of mind for a retailer doesn't necessarily mean peace of mind for consumers. Plunging into Bitcoin is not without risk. In this spring's Cyprus currency crisis - when the government there suggested it would balance its books simply by grabbing cash out of bank accounts - Bitcoin vaulted from under $100 per unit to $260 in a few blinks of an eye.
It has since slid down to under $100.
What spawned Bitcoin in the first place, though, has been distrust in traditional currencies, said Jacqui Dunne, who authored Rethinking Money: How New Currencies Turn Scarcity Into Prosperity (Berrett-Koehler, 2013). She added that people who have been burned in the banking crisis of the last decade - or the economic turmoil in countries like Greece and Spain - "are asking what else can we do?" For some, she suggested, Bitcoin, with its lack of government ties, looms large.
But that cuts both ways. "Bitcoin," stressed Peter Dugas, Director of Government Affairs for national law firm Clark Hill, "is completely based on faith."
How to start in Bitcoin? You can "mine" it by doing CPU intensive work in adding to Bitcoin's ledger of transactions, but, frankly, this is serious gearhead stuff that is not for the dabbler.
Simpler is to buy Bitcoin - Google "where to buy Bitcoin" and you'll get pointers to many sellers such as BitStamp.
Which brings up the crucial question: what can you do with Bitcoin?
"It can be hard to find merchants who accept Bitcoin," admitted Crystal Campbell, herself a Bitcoin user who works for a company that helps merchants process Bitcoin payments.
But, little by little, that is changing.
Website Foodler, for example, arranges the delivery of food from thousands of restaurants - it's especially strong in its hometown Boston - and it happily accepts Bitcoin, said co-founder Christian Dumontet. He explained that Foodler pays the restaurants in dollars ("they don't care about Bitcoin"), and he also said that because of Bitcoin's recent volatility, his company doesn't hold it--opting, instead, to exchange it very quickly.
Get more choice with Gyft - a Google Ventures backed company that sells gift cards from merchants ranging from Amazon to Zales and with plenty of widely available places such as Papa John's and Burger King. "We open the doors to Bitcoin at 55,000 retail locations," said Gyft CEO Vinny Lingham.
He added that Credit card companies with high fees are incentivizing companies lto take Bitcoin.
Gyft, of course, also takes dollars for its gift cards, but, said Lingham, "Bitcoin is growing to be a significant percentage of our business."
Besides, Bitcoin has that cool factor. "We want to be seen as pioneering and Bitcoin helps us there," he said. "This differentiates us from many other gift card sellers."
Understand this: Bitcoin acceptance remains so anemic that there even are websites that list places that do take them - Google "places that accept Bitcoin directly" -- but expect this: More merchants will take Bitcoin, if only to stick a thumb in the eye of Visa and MasterCard while waving a flag of coolness.
"There definitely is a mainstream movement toward Bitcoin, to make it an accepted means of value exchange," said Carol Van Cleef, an emerging currencies expert with Washington, D.C. law firm Patton Boggs. "We are seeing more adoption of Bitcoin in mainstream commerce."
--Written by Robert McGarvey for MainStreet