Bitcoin may offer many benefits to consumers, but there are potential pitfalls to look out for as well. NY1's Tara Lynn Wagner filed the following report.
Credit cards, debit cards, even PayPal—you have lots of options when it comes to making a purchase. Why add another form of payment to the mix? Proponents of bitcoin say it removes the target from consumers' backs.
"Consumers will never ever be victims of identity theft by paying with bitcoin. There's no reason to disclose your full identity every time you want to buy a coffee which you have to do with your credit card," says Tony Gallippi, CEO and co-founder of BitPay.
That's not to say it's entirely secure. Sure, your identity can't be stolen, but your digital currency can.
"People can still steal the bitcoin, there have been breaches of security and hey, exchanges can just shut down at a moment’s notice," says Joe Deaux, an economics analyst at The Street.
The other side of the coin is the impact this could have on the global economy. Bitcoin can be sent anywhere in the world as fast as an email and in most cases for free, a tangible benefit for people who live in the US but send money to families elsewhere.
"Right now they are paying at Western Union eight, nine percent of that just to make that transfer. Virtual currencies, if they continue to develop...the costs could come way down. You'd be able to send money to countries that don't have a modern banking system," says Benjamin Lawsky, Superintendent of Financial Services for the state of New York.
So what's standing in the way of widespread adoption? For one thing, lack of convenience. Consumers can't, at this point, walk up to an ATM and take out some bitcoin or exchange it for cash—although there are companies developing that very infrastructure.
There's also the question of whether or not it's even a currency. The IRS doesn't think so. They recently declared that, for tax purposes at least, it will be treated as property and changes in value subject to the capital gains tax. A move that adds an air of legitimacy, but also presents an extra hurdle for everyday consumers.
"If I bought, just for example, one bitcoin for one dollar and next month bitcoins have risen in value to be worth two dollars, when I go buy my cup of coffee for two dollars, I would theoretically be paying taxes on the one dollar gain that I got from that bitcoin," explains Kenneth Chin, head of the banking and finance group Kramer Levin.
A deterrent? Maybe. There's no doubt, though, that someone in the bitcoin ecosystem is already developing an app to keep track of that.